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 28, 2004

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)

DELAWARE 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 of Heinz that
own and operate Heinz's 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.
Heinz Finance, 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, North American Consumer
Products and U.S. Foodservice. Segment information is set forth in this report
on pages 40 through 41 in Note 16, "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:

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

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

* 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.

For Fiscal 2004, 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.

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PROPERTIES

We operate 25 factories involved in manufacturing our products. We own 21
of these factories and lease the remaining four factories. 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 April 28, 2004, approximately 9,600 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 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;

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- 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, as well as changes in consumer preference;

- 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 or other programs;

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

- Changes in estimates in critical accounting judgments;

- 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 and large global customers;

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

5

ITEM 2. PROPERTIES.

See 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 2004.

6

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

The Independent Director (and any subsequent additional Independent
Director) receives 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.

8

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 2000
through 2004. All amounts are in thousands.

(1) Long-term debt, exclusive of current portion, includes $125.3 million,
$294.8 million and $23.6 million of hedge accounting adjustments
associated with interest rate swaps at April 28, 2004, April 30, 2003
and May 1, 2002, respectively. There were no interest rate swaps at May
2, 2001 and May 3, 2000.

(2) Long-term debt, exclusive of current portion, and preferred stock
include the effects of the prospective classification of Heinz Finance
Company's $325 million of mandatorily redeemable preferred shares to
long-term debt beginning in the second quarter of Fiscal 2004 as a
result of the adoption of Statement of Financial Accounting Standards
("SFAS") No. 150.

Fiscal 2004 results from continuing operations include costs of $8.7
million pretax, primarily due to employee termination and severance costs
related to ongoing efforts to reduce overhead costs, of which $8.6 million
pretax was charged to Heinz Finance by Heinz Management Company.

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.

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.

9

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

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

EXECUTIVE OVERVIEW

Heinz Finance is engaged in the business of acquiring, holding and
financing equity and debt investments in subsidiaries that own and operate
Heinz's U.S. businesses and represents the treasury center for cash management
and debt financing for all of Heinz's domestic operations. Heinz Finance's most
significant asset is its approximately 40% ownership interest in H. J. Heinz
Company, L.P. ("Heinz LP"), a Delaware limited partnership which consists of all
of the U.S. business operations of Heinz. Heinz LP manufactures and markets an
extensive line of processed food products. Heinz LP's principal products include
ketchup, condiments and sauces, frozen food, soups, beans and other processed
food products. Heinz LP's products are sold under highly competitive conditions,
with many large and small competitors. Heinz Finance regards Heinz LP's
principal competition to be other manufacturers of processed foods, including
branded, retail products, foodservice products and private label products that
compete with Heinz LP's products for consumer preference, distribution, shelf
space and merchandising support. Product quality and consumer value are
important areas of competition.

Heinz Finance manages and reports its operating businesses under two
segments, designated North American Consumer Products and U.S. Foodservice. All
of the assets, liabilities, results of operations and cash flows of Heinz
Finance are included in the Heinz consolidated financial statements. All debt of
Heinz Finance is guaranteed by Heinz.

SPECIAL ITEMS

DISCONTINUED OPERATIONS

On December 20, 2002, Heinz transferred to a wholly-owned subsidiary ("SKF
Foods") certain assets and liabilities, including its U.S. pet food and pet
snacks, U.S. tuna, U.S. retail private label soup and private label gravy,
College Inn broths and its 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 Foods Company ("Del Monte") resulting in SKF Foods becoming a wholly-owned
subsidiary of Del Monte.

In accordance with accounting principles generally accepted in the United
States of America, the operating results related to these businesses spun off to
Del Monte have been treated as discontinued operations in Heinz Finance's
consolidated statements of income. The discontinued operations generated sales
of $1,052.6 million and $1,357.7 million and a net loss of $23.3 million (net of
$13.8 million of a tax benefit) and $35.7 million (net of $19.6 million of a tax
benefit) for Fiscal 2003 and 2002, respectively.

REORGANIZATION COSTS

Heinz Finance recognized reorganization costs of $8.7 million pretax in
Fiscal 2004. These costs were recorded as a component of Selling, General and
Administrative expense ("SG&A") and were primarily due to employee termination
and severance costs. Also, of this amount, $8.6 million was charged to Heinz
Finance by Heinz Management Company through a management fee for all salaried
employee costs. Management estimates that these actions impacted approximately
80 employees.

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

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totaling $34.2 million pretax. These costs were then charged to Heinz Finance
through the management 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 of non-cash write-offs.
Of this amount, $6.0 million was included in cost of products sold, $44.0
million in SG&A, and $39.6 million in other expenses, net. Management estimates
that these actions impacted approximately 200 employees, excluding those who
were transferred to Del Monte.

During Fiscal 2004, Heinz Finance utilized $17.9 million in severance and
exit cost accruals related to reorganization costs.

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'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 a realignment that occurred on May 3, 2001.

RESULTS OF CONTINUING OPERATIONS

In the first quarter of Fiscal 2004, Heinz Finance changed its segment
reporting to reflect changes in organizational structure and the management of
its business. Heinz Finance is now managing and reporting its operating
businesses under two segments, which are designated North American Consumer
Products and U.S. Foodservice. Prior periods have been restated to conform with
the current presentation. (See Note 16 to the consolidated financial statements
for further discussion of Heinz Finance's reportable segments.)

FISCAL YEAR ENDED APRIL 28, 2004 AND APRIL 30, 2003

Sales for Fiscal 2004 increased $51.8 million, or 1.6%, to $3.21 billion.
Sales were favorably impacted by volume of 0.7% due to strong increases in the
U.S. Foodservice segment. Pricing remained constant as Heinz Finance's goal to
achieve more competitive net pricing under the Every Day Low Pricing Strategy in
the retail businesses was offset by pricing improvements in the U.S. Foodservice
segment. Acquisitions, net of divestitures, increased sales 0.9% due primarily
to the acquisition of Truesoups LLC.

Gross profit increased $21.6 million, or 1.9%, to $1.16 billion, and, the
gross profit margin increased slightly to 36.2% from 36.1%. The gross profit
increase was primarily driven by Heinz Finance's continuing focus on process and
system improvements, productivity initiatives and elimination of less profitable
Stock Keeping Units. For Fiscal 2003, gross profit was impacted by Del Monte
transaction related costs and costs to reduce overhead of the remaining
businesses of $6.0 million.

SG&A decreased $60.5 million, or 10.0%, to $542.5 million, and, as a
percentage of sales, was reduced to 16.9% from 19.1%. The decrease is primarily
due to decreased marketing expense primarily in the North American Consumer
Products segment reflecting Heinz Finance's goal to achieve more competitive net
pricing as discussed above. Additionally, SG&A was impacted in Fiscal 2004 by
reorganization costs of $8.7 million, and in Fiscal 2003 by Del Monte
transaction related costs and
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cost to reduce overhead of the remaining businesses of $44.0 million. The
favorable impact of these items was offset by increases in pension and personnel
costs.

Total marketing support (recorded either as a reduction of revenue or as a
component of SG&A) decreased $54.2 million, or 6.9%, to $735.6 million on a
sales increase of 1.6%.

Operating income increased $85.4 million, or 22.5%, to $464.7 million, and
increased as a percentage of sales to 14.5% from 12.0% as a result of the
changes noted above.

Net interest expense increased $4.4 million, to $127.1 million, due to the
prospective classification of Heinz Finance's dividends on its mandatorily
redeemable preferred shares to interest expense from retained earnings. This
treatment is in accordance with the adoption of SFAS No. 150 (see below for
further discussion) beginning in the second quarter of Fiscal 2004. This
increase was offset by decreases due to lower debt balances and lower interest
rates. Other expense, net, decreased $51.5 million, to $5.6 million,
attributable to a $39.6 million pretax charge related to early retirement of
debt in Fiscal 2003, gains recorded in Fiscal 2004 on closed commodity futures
contracts and increased equity income. There was a non-cash currency loss of
$21.2 million in the current year compared to $65.0 million in the prior year
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 operations, this marked-to-market adjustment does
not qualify for net investment hedge accounting treatment at Heinz Finance. The
effective tax rate for the current year was 14.9% compared to 10.9% last year.
Heinz Finance's effective tax rate fluctuates depending on the proportion of its
nontaxable minority interest in Heinz LP to total Heinz Finance income before
tax and was also unfavorably impacted by the nondeductible interest expense
associated with Heinz Finance's mandatorily redeemable preferred shares.

Income from continuing operations for Fiscal 2004 was $96.9 million
compared to $54.2 million in Fiscal 2003.

FISCAL 2004 OPERATING RESULTS BY BUSINESS SEGMENT

NORTH AMERICAN CONSUMER PRODUCTS

Sales of the North American Consumer Products segment decreased $60.9
million, or 3.3%. Sales volume decreased 0.4% as strong increases in Heinz
ketchup and frozen potatoes were more than offset by declines in SmartOnes
frozen entrees, related to the increased popularity of low-carb dieting, which
drove declines in the nutritional frozen entree category in the U.S., as well as
the effects of the rationalization of Boston Market side dishes and Hot Bites
snacks. Lower pricing decreased sales 1.9% consistent with our strategy to
obtain more competitive consumer price points on Boston Market HomeStyle meals,
Heinz gravy, Classico pasta sauces, SmartOnes frozen entrees and Delimex frozen
snacks. Divestitures in the prior year reduced sales 1.0%.

Gross profit decreased $11.5 million, or 1.5%, to $748.4 million; however,
the gross profit margin increased to 42.3% from 41.5%, as manufacturing cost
savings, reflecting significant productivity initiatives and more effective and
efficient new product launches, offset unfavorable pricing and higher commodity
costs. In addition, reorganization costs unfavorably impacted gross profit by
$4.9 million in Fiscal 2003. Operating income increased $65.5 million, or 27.1%,
to $306.8 million, primarily due to decreased consumer marketing expenses
related to the prior year launch of Easy Squeeze!, Boston Market frozen entrees,
Hot Bites snacks and Ore-Ida Funky Fries. In addition, Fiscal 2004 operating
income was unfavorably impacted by reorganization costs of $4.8 million and
Fiscal 2003 operating income was unfavorably impacted by Del Monte transaction
related costs and costs to reduce overhead of the remaining businesses of $44.0
million.

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U.S. FOODSERVICE

U.S. Foodservice's sales increased $112.6 million, or 8.5%. Sales volume
increased sales 2.3% primarily due to increases in Heinz ketchup, Escalon
processed tomato products, Dianne's frozen desserts and single serve condiments
as a result of new customers, successful product innovation and a strengthening
trend in the U.S. restaurant industry. Higher pricing increased sales by 2.6%
chiefly due to Heinz ketchup and single serve condiments. Acquisitions, net of
divestitures, increased sales 3.5%, primarily due to the acquisition of
Truesoups LLC, a manufacturer and marketer of premium frozen soups.

Gross profit increased $33.0 million, or 8.6%, to $415.9 million, and the
gross profit margin remained constant at 28.8% as favorable pricing and sales
mix were offset by higher commodity costs. In addition, reorganization costs
unfavorably impacted gross profit by $1.1 million for Fiscal 2003. Operating
income increased $19.9 million, or 14.2%, to $160.1 million, primarily due to
the growth in gross profit, partially offset by the impact of higher sales
volume on Selling & Distribution expenses ("S&D") and increased General &
Administrative expenses ("G&A") attributable to increased personnel and systems
costs. In addition, reorganization costs unfavorably impacted operating income
by $3.9 million in Fiscal 2004 and Del Monte transaction related costs and costs
to reduce overhead of the remaining businesses unfavorably impacted operating
income by $5.9 million for Fiscal 2003.

FISCAL YEAR ENDED APRIL 30, 2003 AND MAY 1, 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 3, 2001 (10.1%),
partially offset by volume declines in the North American Consumer Products
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 32.0%, 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 North American
Consumer Products segment, partially offset by the increase in sales discussed
above.

Net interest expense increased $15.5 million to $122.8 million, 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
13

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 nontaxable
minority interest in Heinz LP to total Heinz Finance income before tax.

Income from continuing operations for Fiscal 2003 was $54.2 million
compared to $109.4 million in Fiscal 2002.

FISCAL YEAR 2003 OPERATING RESULTS BY BUSINESS SEGMENT

NORTH AMERICAN CONSUMER PRODUCTS

Sales of the North American Consumer Products segment increased $291.5
million, or 18.9%, to $1.83 billion. Acquisitions, net of divestitures,
increased sales 5.5%, due primarily to the prior year acquisitions of Classico
and Aunt Millie's pasta sauce, Mrs. Grass Recipe soups, Wyler's bouillons and
soups, Delimex frozen Mexican foods, Poppers retail frozen appetizers and
licensing rights to the T.G.I. Friday's brand of frozen snacks and appetizers.
Higher pricing increased sales 0.6%, due mainly to Heinz ketchup, Jack Daniels
marinades and grilling sauces, Ore-Ida frozen potatoes and a reduction in trade
promotions related to the launch of Hot Bites in the prior year, partially
offset by Boston Market HomeStyle meals and appetizers and SmartOnes frozen
entrees. Sales volume increased 16.4% due primarily to the finished goods
inventories which were retained by Heinz and increases in SmartOnes frozen
entrees and specialty sauces partially offset by decreases primarily in Heinz
ketchup and vinegar, Boston Market HomeStyle side dishes, Ore-Ida Funky Fries
and Hot Bites.

Gross profit increased $90.8 million, or 13.6%, to $759.9 million; however,
the gross profit margin decreased to 41.5% from 43.5% due primarily to
unfavorable sales mix, increased manufacturing costs and costs to exit the
Ore-Ida Funky Fries and Hot Bites product lines, partially offset by increases
due to the finished goods inventories which were retained by Heinz, reduced
amortization expense on intangible assets with indefinite lives, favorable
pricing and acquisitions. Gross profit was also unfavorably impacted in Fiscal
2003 by $4.9 million for Del Monte transaction related costs and costs to reduce
overhead of the remaining businesses. Operating income decreased $39.0 million,
or 13.9%, to $241.3 million due primarily to the change in gross profit, higher
S&D and increased marketing primarily behind Heinz Easy Squeeze! ketchup,
Classico pasta sauce, SmartOnes frozen entrees and Ore-Ida frozen potatoes,
partially offset by increases due to the finished goods inventories retained by
Heinz. Additionally, operating income was unfavorably impacted by Del Monte
transaction related costs and costs to reduce overhead of the remaining
businesses in Fiscal 2003 of $44.0 million.

U.S. FOODSERVICE

Sales of the U.S. Foodservice segment increased $37.3 million, or 2.9%, to
$1.33 billion. Acquisitions increased sales 2.3%, due to the acquisition of
Dianne's frozen desserts. Lower pricing decreased sales 0.3%. Sales volume
increased 0.9% due primarily to Heinz ketchup and Dianne's frozen desserts.

Gross profit increased $6.9 million, or 1.8%, to $383.0 million; however,
the gross profit margin decreased to 28.8% from 29.1% due primarily to
unfavorable sales mix and increased manufacturing costs, partially offset by
favorable pricing. Operating income decreased $30.0 million, or 17.6%, to $140.2
million due primarily to higher S&D and G&A expenses, increased marketing
primarily behind the ketchup "Insist on Heinz" campaign. Operating income was
also unfavorably impacted by costs to reduce overhead of the remaining
businesses in Fiscal 2003 of $5.9 million.

LIQUIDITY AND FINANCIAL POSITION

Cash provided by operating activities in Fiscal 2004 was $550.8 million, a
decrease of $184 million from last year. The decrease in Fiscal 2004 versus
Fiscal 2003 is primarily due to working capital, particularly accounts
receivable and due from/to related parties.

14

Cash used for investing activities totaled $112.6 million compared to $55.2
million last year. Acquisitions used $61.3 million in cash in Fiscal 2004, while
there were no acquisitions in Fiscal 2003. Capital expenditures totaled $56.1
million compared to $59.6 million last year and are expected to increase
slightly in Fiscal 2005 when compared with Fiscal 2004.

Cash used for financing activities totaled $170.4 million compared to
$492.2 million last year. Heinz Finance paid down $8.3 million in long-term debt
during Fiscal 2004, compared to $651.1 million last year. 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 in Fiscal 2003.
Proceeds from short-term borrowings with related parties provided $0.1 million
in Fiscal 2004 and payments on short-term borrowings with related parties
required $384.3 million in Fiscal 2003. Dividend payments to preferred
shareholders were $5.1 million in the current year compared to $20.2 million for
the same period last year as a result of the adoption of SFAS No. 150 as
previously discussed. In addition, distributions to minority partners were
$157.2 million in the current year compared to $412.9 million in the prior year.

At April 28, 2004, the Heinz Finance's external net debt (total external
debt net of the value of interest rate swaps of $125.3 million, less cash and
cash equivalents) was $3.56 billion. Excluding the reclassification of Heinz
Finance's preferred stock (see below for further discussion), external net debt
would have been $3.24 billion, down approximately $255 million compared to the
year earlier period. Heinz Finance expects that over $350 million of long-term
debt maturing in Fiscal 2005 will be retired.

Heinz Finance's cash balance together with its anticipated strong operating
cash flow and access to the committed and uncommitted credit facilities and
capital market, if required, should enable Heinz Finance to meet its cash
requirements for operations.

Return on average shareholder's equity ("ROE") was 40.7% in Fiscal 2004,
16.2% in Fiscal 2003 and 45.4% in Fiscal 2002. Pretax return on average invested
capital ("ROIC") was 13.2% in Fiscal 2004, 10.0% in Fiscal 2003 and 14.8% in
Fiscal 2002.

In September 2001, Heinz and Heinz Finance entered into an $800 million
364-Day Credit Agreement, and a $1.5 billion Five-Year Credit Agreement,
expiring in September 2006. In September 2003, the 364-day agreement was renewed
and the borrowing amount was reduced to $600 million. These agreements support
Heinz 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 and Heinz Finance's ability to refinance these borrowings on a
long-term basis.

As of April 28, 2004, Heinz Finance had $800 million of remarketable
securities due November 2020. These securities are subject to an annual
remarketing on each November 15, and the interest rate is reset on such dates.
If the securities are not remarketed, then Heinz Finance is required to
repurchase all of the securities at 100% of the principal amount plus accrued
interest. On November 15, 2003, the securities were remarketed at a coupon of
5.772%.

All of Heinz Finance's debt is guaranteed by Heinz. At April 28, 2004,
Heinz's long-term debt ratings were A at Standard & Poor's and Fitch and A-3 at
Moody's and Heinz Finance's short-term debt ratings were A-1 at Standard &
Poor's, F-1 at Fitch and P-2 at Moody's.

In Fiscal 2004, the cash requirements of reorganization costs were
approximately $17.2 million. Fiscal 2005 cash requirements related to
reorganization costs are expected to be approximately $5.0 million.

CONTRACTUAL OBLIGATIONS AND OTHER COMMITMENTS

CONTRACTUAL OBLIGATIONS

Heinz Finance is obligated to make future payments under various contracts
such as debt agreements, lease agreements and unconditional purchase
obligations. In addition, Heinz Finance has purchase obligations for materials,
supplies, services and property, plant and equipment as part of the

15

ordinary conduct of business. A few of these obligations are long-term and are
based on minimum purchase requirements. In the aggregate, such commitments are
not at prices in excess of current markets. Due to the proprietary nature of
some of Heinz Finance's materials and processes, certain supply contracts
contain penalty provisions for early terminations. Heinz Finance does not
believe that a material amount of penalties are reasonably likely to be incurred
under these contracts based upon historical experience and current expectations.

The following table represents the significant contractual obligations of
Heinz Finance as of April 28, 2004.

The following long-term liabilities included in the consolidated balance
sheet are excluded from the table above: income taxes, minority interest and
other liabilities. Heinz Finance is unable to estimate the timing of the
payments for these items.

OFF-BALANCE SHEET ARRANGEMENTS AND OTHER COMMITMENTS

Heinz Finance does not have material financial guarantees or other
contractual commitments that are reasonably likely to adversely affect
liquidity. In addition, see Note 8 of the consolidated 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, foreign exchange rates 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 external net
debt obligations totaled $3.56 billion (or $3.24 billion excluding the
reclassification of preferred stock) and $3.49 billion at April 28, 2004 and
April 30, 2003, respectively. Heinz Finance's debt obligations are summarized in
Note 10 to the consolidated financial statements.

In order to manage interest rate exposure, Heinz Finance utilizes interest
rate swaps in order to convert fixed-rate debt to floating. These derivatives
are primarily accounted for as fair value hedges. 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 28, 2004, a variance of 1/8% in the related interest rate
would cause annual interest expense related to this debt to change by

16

approximately $3.6 million. The following table presents additional information
related to interest rate contracts designated as fair value hedges by Heinz
Finance:

Heinz Finance had interest rate contracts with total notional amounts of
$907.6 million and $400 million at April 28, 2004 and April 30, 2003,
respectively, that do not meet the criteria for hedge accounting but effectively
mitigate interest rate exposures. These derivatives are accounted for on a full
mark-to-market basis through current earnings and their weighted average
maturity is less than twelve months from the fiscal year-end. In connection with
one of the interest rate swaps, Heinz Finance maintains a cash investment with
the counterparty and receives a market rate of interest. The amount of the cash
investment fluctuates and was $165.6 million at April 28, 2004. Net unrealized
gains related to these interest rate contracts totaled $4.5 million and $2.1
million at April 28, 2004 and April 30, 2003, respectively.

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 had no outstanding commodity contracts at April 28, 2004. Heinz
Finance held commodity contracts to hedge certain forecasted purchases with a
notional amount of $21 million at April 30, 2003. 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 income and is
recognized as part of cost of products sold at the 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 significant at April 30,
2003.

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 may attempt to limit its
exposure to changing foreign exchange rates through financial market actions.
These actions may include entering into forward or option contracts to hedge
exposures. The instruments are used to reduce risk by essentially creating
offsetting currency exposures.

Heinz Finance had foreign denominated borrowings totaling $539.4 million
and $335.6 million at April 28, 2004 and April 30, 2003, respectively. Euro
denominated borrowing represented $355.3 million of this amount at April 28,
2004 and the entire balance at April 30, 2003. 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 net investment hedge accounting
treatment at Heinz Finance. Consequently, losses of $21.2 million and $65.4
million due to exchange rate variation were included in currency loss for the
years ended April 28, 2004 and April 30, 2003, respectively.

17

At April 28, 2004, Heinz Finance had outstanding foreign currency contracts
with a notional amount of $182 million to hedge cash flows associated with
foreign-currency-denominated borrowings. These contracts mature within one year
and are accounted for as foreign currency cash flow hedges. Accordingly, the
effective portion of gains and losses is deferred as a component of other
comprehensive income and is recognized in earnings at the time the hedged item
affects earnings. Any gains and losses due to hedge ineffectiveness are recorded
in current period earnings in other expenses, net. Net unrealized gains related
to foreign currency contracts totaled $0.5 million at April 28, 2004. Heinz
Finance had no outstanding foreign currency contracts at April 30, 2003.

EFFECT OF HYPOTHETICAL 10% FLUCTUATION IN MARKET PRICES

As of April 28, 2004, the potential gain or loss in the fair value of Heinz
Finance's outstanding interest rate contracts and foreign currency contracts,
assuming a hypothetical 10% fluctuation in swap rates and currency rates,
respectively, would be approximately:

However, 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. In relation to currency
contracts, this hypothetical calculation assumes that each exchange rate would
change in the same direction relative to the U.S. dollar.

RECENTLY ISSUED ACCOUNTING STANDARDS

In December 2003, the Medicare Prescription Drug, Improvement and
Modernization Act of 2003 ("the Act") was signed into law. The Act introduced a
prescription drug benefit under Medicare (Medicare Part D) and a federal subsidy
to sponsors of retirement health care plans that provide a benefit that is at
least actuarially equivalent to Medicare Part D. In accordance with FASB Staff
Position 106-1, Heinz Finance elected to defer recognizing the effects of the
Act on the accounting for its retirement health care plans in Fiscal 2004. In
May of 2004, the FASB issued Staff Position 106-2, providing final guidance on
accounting for the Act. Heinz Finance is currently evaluating the impact of this
guidance on its financial position, results of operations and cash flows.

In December 2003, the FASB issued FASB Interpretation ("FIN") No. 46-R,
"Consolidation of Variable Interest Entities." FIN No. 46-R, which modifies
certain provisions and effective dates of FIN No. 46, sets forth criteria to be
used in determining whether an investment in a variable interest entity should
be consolidated, and is based on the general premise that companies that control
another entity through interests other than voting interests should consolidate
the controlled entity. The provisions of FIN No. 46 became effective for Heinz
Finance during its fourth quarter of Fiscal 2004. The adoption of this new
standard did not have an impact on Heinz Finance's financial position, results
of operations or cash flows.

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

18

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. No impairment issues were
identified as result of adopting SFAS No. 142.

DISCUSSION OF SIGNIFICANT ACCOUNTING ESTIMATES

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

MARKETING COSTS

Trade promotions are an important component of the sales and marketing of
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 value. Cost is
principally determined by the average cost method. Heinz Finance records
adjustments to the carrying value of inventory based upon its forecasted plans
to sell its inventories. The physical condition (e.g., age and quality) of the
inventories is also considered in establishing its valuation. These adjustments
are estimates, which could vary 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 Heinz Finance's
business model or changes in Heinz Finance's capital strategy could result in
the actual useful lives differing from Heinz Finance's estimates. In those cases
where Heinz Finance determines that the useful life of buildings and equipment
should be shortened, Heinz Finance 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.

INVESTMENTS AND LONG-LIVED ASSETS

Investments and 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

19

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

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.

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 effects have not been material to Heinz Finance 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 2005 results.
Heinz Finance's financial position continues to remain strong, enabling it to
meet cash requirements for operations.

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 16 through 18.

20

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

TABLE OF CONTENTS

Report of Independent Registered Public Accounting Firm..... 22
Consolidated Statements of Income........................... 23
Consolidated Balance Sheets................................. 24
Consolidated Statements of Shareholder's Equity............. 25
Consolidated Statements of Cash Flows....................... 26
Notes to Consolidated Financial Statements.................. 27

21

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders of
H. J. Heinz Finance Company:

In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of income, shareholder's equity and cash flows
present fairly, in all material respects, the financial position of H. J. Heinz
Finance Company and its subsidiaries (the "Company") at April 28, 2004 and April
30, 2003, and the results of their operations and their cash flows for each of
the three years in the period ended April 28, 2004, in conformity with
accounting principles generally accepted in the United States of America. In
addition, in our opinion, the financial statement schedule listed in the index
appearing under Item 15(a)(2) presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related
consolidated financial statements. These financial statements and the financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and the
financial statement schedule based on our audits. We conducted our audits of
these statements in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards 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 7 to the consolidated 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 8, 2004

22

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

The accompanying notes are an integral part of these financial statements.
23

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

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

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

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

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

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

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

1. BASIS OF PRESENTATION

The U.S. treasury and domestic business operations of H.J. Heinz Company
("Heinz") are 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 equal to approximately 40% of the
capital of Heinz LP.

Heinz LP owns or leases the operating assets involved in manufacturing
throughout the United States 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 Heinz's domestic
operations. 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 28, 2004 and April 30, 2003
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 reported in the Heinz consolidated financial
statements as long-term debt at April 28, 2004 and minority interest at April
30, 2003.

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 28, 2004, April 30, 2003, and May 1, 2002.

PRINCIPLES OF CONSOLIDATION

The consolidated 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 2004 presentation.

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.

27

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

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.

REVENUE RECOGNITION

Heinz Finance recognizes revenue when title, ownership and risk of loss
pass to the customer. Revenue is recorded, net of sales incentives, and includes
shipping and handling charges billed to customers. Shipping and handling costs
are classified as part of cost of sales.

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.

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

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 notes receivable from related parties, long-term notes
receivable from related parties, short-term debt with related parties, long-term
debt, swaps, forward contracts, 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 28, 2004 and April
30, 2003, 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 currency, 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.
Derivatives with scheduled maturities of less than one year are included in
receivables or accounts payable, based on the instrument's fair value.
Derivatives with scheduled maturities beyond one year are presented as a
component of other non-current assets or other liabilities, 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 December 2003, the Medicare Prescription Drug, Improvement and
Modernization Act of 2003 ("the Act") was signed into law. The Act introduced a
prescription drug benefit under Medicare (Medicare Part D) and a federal subsidy
to sponsors of retirement health care plans that provide a benefit that is at
least actuarially equivalent to Medicare Part D. In accordance with FASB Staff
Position 106-1, Heinz Finance has elected to defer recognizing the effects of
the Act on the accounting for its retirement health care plans in Fiscal 2004.
In May of 2004, the FASB issued Staff Position 106-2, providing final guidance
on accounting for the Act. Heinz Finance is currently evaluating the impact of
this guidance on its financial position, results of operations and cash flows.

In December 2003, the FASB issued FASB Interpretation ("FIN") No. 46-R,
"Consolidation of Variable Interest Entities." FIN No. 46-R, which modifies
certain provisions and effective dates of FIN No. 46, sets forth criteria to be
used in determining whether an investment in a variable interest entity should
be consolidated, and is based on the general premise that companies that control
another entity through interests other than voting interests should consolidate
the controlled entity. The provisions of FIN No. 46 became effective for Heinz
Finance during the fourth quarter of Fiscal 2004. The adoption of this new
standard did not have an impact on Heinz Finance's financial position, results
of operations or cash flows.

In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity". This
statement affects the classification, measurement and disclosure requirements of
certain freestanding financial instruments including mandatorily redeemable
shares. SFAS No. 150 was effective for Heinz Finance for the second quarter

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

of Fiscal 2004. The adoption of SFAS No. 150 required the prospective
classification of Heinz Finance Company's $325 million of mandatorily redeemable
preferred shares as long-term debt and the $5.1 million quarterly preferred
dividend from retained earnings to interest expense beginning in the second
quarter ending October 29, 2003.

4. DISCONTINUED OPERATIONS AND SPIN-OFF

On December 20, 2002, Heinz transferred to a wholly-owned subsidiary ("SKF
Foods") certain assets and liabilities, including its U.S. pet food and pet
snacks, U.S. tuna, U.S. retail private label soup and private label gravy,
College Inn broths and 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 Foods Company ("Del Monte") resulting in SKF Foods becoming a wholly-owned
subsidiary of Del Monte.

In accordance with accounting principles generally accepted in the United
States of America, the operating results related to these businesses spun off to
Del Monte have been treated as discontinued operations in Heinz Finance's
consolidated statements of income. The discontinued operations generated sales
of $1,052.6 million and $1,357.7 million and a net loss of $23.3 million (net of
$13.8 million of a tax benefit) and $35.7 million (net of $19.6 million of a tax
benefit) for Fiscal 2003 and 2002, respectively.

5. ACQUISITIONS/DIVESTITURES

All of the following acquisitions have been accounted for as purchases and,
accordingly, the respective purchase prices have been allocated to the
respective assets and liabilities based upon their estimated fair values as of
the acquisition date. Operating results of businesses acquired have been
included in the consolidated statements of income from the respective
acquisition dates forward. There are no significant contingent payments, options
or commitments associated with any of the acquisitions.

Pro forma results of Heinz Finance, assuming all of the following
acquisitions and divestitures had occurred at the beginning of each period
presented, would not be materially different from the results reported.

During Fiscal 2002, Heinz Finance acquired the following businesses for a
total of $813.9 million, which was paid primarily in cash, including obligations
to sellers of $2.5 million:

- In July 2001, Heinz Finance completed the acquisition of Borden Food
Corporation's pasta sauce, dry bouillon and soup businesses including
such brands as Classico pasta sauces, Aunt Millie's pasta sauce, Mrs.
Grass Recipe soups and Wyler's bouillons and soups.

- In August 2001, Heinz Finance completed the acquisition of Delimex
Holdings, Inc., a leading maker of frozen Mexican food products such as
taquitos, quesadillas, tamales and rice bowls.

- In September 2001, Heinz Finance completed the acquisition of Anchor Food
Products branded retail business, which includes the retail licensing
rights to the T.G.I. Friday's brand of frozen snacks and appetizers and
the Popper's brand of retail appetizer lines.

- Heinz Finance also made other smaller acquisitions.

The allocation of the purchase price resulted in goodwill of $578.3
million, which was assigned to North American Consumer Products segment. Of that
amount, $367.8 million is expected to be deductible for tax purposes. In
addition, $186.0 million of intangible assets were acquired, of which $91.1
million was assigned to brands and trademarks that are not subject to
amortization. The remaining $94.9 million of acquired intangible assets has a
weighted-average useful life of approxi-

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

mately 27 years. The intangible assets that make up that amount include brands
and trademarks of $39.1 million (38-year weighted-average useful life),
licensing agreements of $45.8 million (20-year weighted-average useful life) and
patents of $10.0 million (18-year weighted-average useful life).

Heinz Finance made a small acquisition in Fiscal 2004 for a total purchase
price of $61.3 million. There were no acquisitions in Fiscal 2003.

6. SPECIAL ITEMS

REORGANIZATION COSTS

In Fiscal 2004, Heinz Finance recognized reorganization costs of $8.7
million pretax which were primarily due to employee termination and severance
costs. Of this amount, $8.6 million was charged to Heinz finance by Heinz
Management Company through a management fee for all salaried employee costs.
These costs were recognized as a component of selling, general and
administrative expenses ("SG&A").

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 management 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 of non-cash write-offs. Of this amount, $6.0
million was included in cost of products sold, $44.0 million in SG&A, and $39.6
million in other expenses, net.

During Fiscal 2004, Heinz Finance utilized $17.9 million of severance and
exit cost accruals related to reorganization costs. Amounts included in accounts
payable to related parties and other accrued liabilities related to these
initiatives totaled $5.0 million and $14.1 million at April 28, 2004 and April
30, 2003, respectively.

STREAMLINE

In the fourth quarter of Fiscal 2001, Heinz announced a restructuring
initiative named "Streamline" which 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 the Company'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, 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 the Heinz Finance's restructuring liability as a
result of the realignment that occurred on May 3, 2001.

7. GOODWILL AND OTHER INTANGIBLE ASSETS

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 impairment assessment of the

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

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 annual impairment tests are performed in the fourth quarter of each
fiscal year unless events suggest an impairment may have occurred in the
interim. No impairment charges were recognized in Fiscal 2004.

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

Income from continuing operations for Fiscal 2002 would have been $110.1
million had the provisions of the new standards been applied as of May 3, 2001.

In the first quarter of Fiscal 2004, Heinz Finance changed its segment
reporting to reflect changes in organizational structure and management of its
businesses (see footnote 16). Heinz Finance reallocated the goodwill previously
assigned to its Heinz North America and U.S. Frozen segments to the new North
American Consumer Products and U.S. Foodservice segments based on the relative
fair values of the underlying reporting units as of May 1, 2003.

Changes in the carrying amount of goodwill for the fiscal year ended April
28, 2004 by reportable segment are as follows:

Trademarks and other intangible assets at April 28, 2004 and April 30,
2003, subject to amortization expense, are as follows:

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

Amortization expense for trademarks and other intangible assets subject to
amortization was $9.6 million for the fiscal year ended April 28, 2004. Based
upon the amortizable intangible assets recorded on the balance sheet as of April
28, 2004, amortization expense for each of the next five years is estimated to
be approximately $10 million.

Intangible assets not subject to amortization totaled $103.1 million and
$91.1 million at April 28, 2004 and April 30, 2003, respectively, and consisted
solely of trademarks.

8. RELATED PARTY TRANSACTIONS

EMPLOYEE COSTS

Certain of Heinz's general and administrative expenses are allocated to
Heinz Finance. These costs primarily include a management charge of all salaried
employee costs from the Heinz Management Company. Total costs charged to Heinz
Finance for these services, including discontinued operations, were $252.5
million, $333.1 million and $334.8 million in Fiscal 2004, 2003 and 2002,
respectively. These costs are recorded as cost of products sold or SG&A expense
in the accompanying consolidated statements of income depending on the nature of
the cost.

Heinz charges Heinz Finance for its share of group health insurance costs
for eligible company employees based upon location-specific costs, overall
insurance costs and loss experience incurred during a calendar year. In
addition, various other insurance coverages are also provided to Heinz Finance
through Heinz's corporate programs. Workers compensation, auto, property,
product liability and other insurance coverages are charged directly based on
Heinz Finance's loss experience. Amounts charged to Heinz Finance for insurance
costs, including discontinued operations were $65.4 million, $75.8 million and
$65.2 million for Fiscal 2004, 2003, 2002, respectively, and are recorded in
SG&A expense in the accompanying consolidated statements of income.

Pension costs and postretirement costs are also charged to Heinz Finance
based upon eligible employees participating in the Plans. See Note (14).

CASH MANAGEMENT

Heinz Finance represents the treasury center for cash management and debt
financing for all of Heinz's domestic operations. In addition, Heinz Finance
enters into a number of short-term notes payable with foreign wholly-owned
subsidiaries of Heinz. As a result of these cash management activities, Heinz
Finance had $104.6 million and $100.3 million of net short-term notes receivab