HEINZ H J CO - 10-K Annual Report

Back to GetFilings.com

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 27, 2005

or

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

For the transition period from __________ to __________

Commission File Number 1-3385

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

PENNSYLVANIA 25-0542520
(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:

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 X No _

As of October 27, 2004 the aggregate market value of the Registrant's
voting stock held by non-affiliates of the Registrant was approximately
$12,361,465,110.

The number of shares of the Registrant's Common Stock, par value $.25 per
share, outstanding as of May 31, 2005, was 347,553,381 shares.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant's Proxy Statement for the Annual Meeting of
Shareholders to be held on August 23, 2005, which will be filed with the
Securities and Exchange Commission within 120 days after the end of the
Registrant's fiscal year ended April 27, 2005, are incorporated into Part III,
Items 10, 11, 12, 13, and 14.

PART I

ITEM 1. BUSINESS.

H. J. Heinz Company was incorporated in Pennsylvania on July 27, 1900. In
1905, it succeeded to the business of a partnership operating under the same
name which had developed from a food business founded in 1869 in Sharpsburg,
Pennsylvania by Henry J. Heinz. H. J. Heinz Company and its subsidiaries
(collectively, the "Company") manufacture and market an extensive line of
processed food products throughout the world. The Company's principal products
include ketchup, condiments and sauces, frozen food, soups, beans and pasta
meals, tuna and other seafood products, infant food and other processed food
products.

The Company's products are manufactured and packaged to provide safe,
wholesome foods for consumers, foodservice and institutional customers. Many
products are prepared from recipes developed in the Company's research
laboratories and experimental kitchens. Ingredients are carefully selected,
washed, trimmed, inspected and passed on to modern factory kitchens where they
are processed, after which the intermediate product is filled automatically into
containers of glass, metal, plastic, paper or fiberboard, which are then closed.
Products are processed by sterilization, homogenization, chilling, freezing,
pickling, drying, freeze drying, baking or extruding, then labeled and cased for
market.

The Company manufactures and contracts for the manufacture of its products
from a wide variety of raw foods. Pre-season contracts are made with farmers for
a portion of raw materials such as tomatoes, cucumbers, potatoes, onions and
some other fruits and vegetables. Dairy products, meat, sugar, spices, flour and
certain other fruits and vegetables are generally purchased on the open market.
Tuna is obtained through spot and term contracts directly with tuna vessel
owners or their cooperatives and by brokered transactions.

The following table lists the number of the Company's principal food
processing factories and major trademarks by region:

2

The Company also owns or leases office space, warehouses, distribution
centers and research and other facilities throughout the world. The Company's
food processing plants and principal properties are in good condition and are
satisfactory for the purposes for which they are being utilized.

The Company has participated in the development of certain of its food
processing equipment, some of which is patented. The Company regards these
patents as important but does not consider any one or group of them to be
materially important to its business as a whole.

Although crops constituting some of the Company's raw food ingredients are
harvested on a seasonal basis, most of the Company's products are produced
throughout the year. Seasonal factors inherent in the business have always
influenced the quarterly sales and net income of the Company. Consequently,
comparisons between quarters have always been more meaningful when made between
the same quarters of prior years.

The products of the Company are sold under highly competitive conditions,
with many large and small competitors. The Company regards its principal
competition to be other manufacturers of processed foods, including branded
retail products, foodservice products and private label products, that compete
with the Company for consumer preference, distribution, shelf space and
merchandising support. Product quality and consumer value are important areas of
competition.

The Company's products are sold through its own sales force and through
independent brokers, agents and distributors to chain, wholesale, cooperative
and independent grocery accounts, convenience stores, bakeries, pharmacies, mass
merchants, club stores, foodservice distributors and institutions, including
hotels, restaurants, hospitals, health-care facilities, and certain government
agencies. For Fiscal Year 2005, no single customer represented more than 10% of
the Company's sales.

Compliance with the provisions of national, state and local environmental
laws and regulations has not had a material effect upon the capital
expenditures, earnings or competitive position of the Company. The Company's
estimated capital expenditures for environmental control facilities for the
remainder of Fiscal Year 2006 and the succeeding fiscal year are not material
and are not expected to materially affect either the earnings or competitive
position of the Company.

The Company's factories are subject to inspections by various governmental
agencies, including the United States Department of Agriculture, and the
Occupational Health and Safety Administration, and its products must comply with
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.

The Company employed, on a full-time basis as of April 27, 2005,
approximately 41,000 persons around the world.

Segment information is set forth in this report on pages 61 through 63 in
Note 15, "Segment Information" in Item 8--"Financial Statements and
Supplementary Data."

Income from international operations is subject to fluctuation in currency
values, export and import restrictions, foreign ownership restrictions, economic
controls and other factors. From time to time, exchange restrictions imposed by
various countries have restricted the transfer of funds between countries and
between the Company and its subsidiaries. To date, such exchange restrictions
have not had a material adverse effect on the Company's operations.

CAUTIONARY STATEMENT RELEVANT TO FORWARD-LOOKING INFORMATION

The Private Securities Litigation Reform Act of 1995 (the "Act") provides a
safe harbor for forward-looking statements made by or on behalf of the Company.
The Company and its represent-

3

atives may from time to time make written or oral forward-looking statements,
including statements contained in the Company's filings with the Securities and
Exchange Commission and in its reports to shareholders. 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, the Company notes
that a variety of factors could cause the Company's actual results and
experience to differ materially from the anticipated results or other
expectations expressed in the Company's forward-looking statements. These
forward-looking statements are uncertain. The risks and uncertainties that may
affect operations and financial performance and other activities, some of which
may be beyond the control of the Company, include the following:

- Changes in laws and regulations, including changes in food and drug laws,
accounting standards, taxation requirements (including tax rate changes,
new tax laws and revised tax law interpretations) and environmental laws
in domestic or foreign jurisdictions;

- Competitive product and pricing pressures and the Company's ability to
gain or maintain share of sales as a result of actions by competitors and
others;

- Fluctuations in the cost and availability of raw materials and the
Company's 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 the Company's products;

- The Company's ability to generate sufficient cash flows to support
capital expenditures, share repurchase programs, interest and debt
principal 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 and the ability to
anticipate and respond to consumer trends;

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

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

- The Company's ability to achieve its cost savings objectives, including
any restructuring programs, strategic initiatives, working capital
initiatives or other programs;

- The impact of unforeseen economic and political changes in markets where
the Company competes, such as export and import restrictions, currency
exchange rates and restrictions, inflation rates, recession, foreign
ownership restrictions, nationalization and other external factors over
which the Company has no control;

- The possibility of increased pension expense and contributions resulting
from declines in stock market returns and cost increases for medical
benefits;

- The performance of businesses in hyperinflationary environments;

- The effect of any recalls of products;

- Changes in estimates in critical accounting judgments;

- Interest rate fluctuations and other capital market conditions;
4

- The effectiveness of the Company's advertising, marketing and promotional
programs;

- Weather conditions, which could impact demand for Company products and
the supply and cost of raw materials;

- The impact of supply chain efficiency and cash flow initiatives;

- Potential impairment of investments;

- Risks inherent in litigation;

- The Company's ability to maintain its profit margin in the face of a
consolidating retail environment and large global customers;

- The impact of global industry conditions, including the effect of the
economic downturn in the food industry; and

- The Company's ability to offset the reduction in volume and revenue
resulting from participation in categories experiencing declining
consumption rates.

The foregoing list of important factors is not exclusive. The
forward-looking statements are and will be based on management's then current
views and assumptions regarding future events and operating performance and
speak only as of their dates. The Company undertakes no obligation to publicly
update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise, except as required by the securities
laws.

ITEM 2. PROPERTIES.

See table in Item 1.

ITEM 3. LEGAL PROCEEDINGS.

None.

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

The Company has not submitted any matters to a vote of security holders
since the last annual meeting of shareholders on September 8, 2004.

5

EXECUTIVE OFFICERS OF THE REGISTRANT

The following is a list of the names and ages of all of the executive
officers of H. J. Heinz Company indicating all positions and offices held by
each such person and each such person's principal occupations or employment
during the past five years. All the executive officers have been elected to
serve until the next annual election of officers, until their successors are
elected, or until their earlier resignation or removal. The annual election of
officers is scheduled to occur on August 23, 2005.

* Mr. Bertasso retired from the Company in June 2005.

7

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES.

Information relating to the Company's common stock is set forth in this
report on pages 27 through 28 under the caption "Stock Market Information" in
Item 7--"Management's Discussion and Analysis of Financial Condition and Results
of Operations", and on page 64 in Note 16, "Quarterly Results" in Item
8--"Financial Statements and Supplementary Data."

In the fourth quarter of Fiscal 2005, the Company repurchased the following
number of shares of its common stock:

The shares repurchased were acquired under the share repurchase program
authorized by the Board of Directors on January 14, 2004 for a maximum of 15
million shares. All repurchases were made in open market transactions. As of
April 27, 2005, the maximum number of shares that may yet be purchased under the
2004 program is 6,996,392. In addition, on June 8, 2005, the Board of Directors
authorized a share repurchase program of up to 30 million shares, all of which
may yet be purchased under the program.

8

ITEM 6. SELECTED FINANCIAL DATA.

The following table presents selected consolidated financial data for the
Company and its subsidiaries for each of the five fiscal years 2001 through
2005. All amounts are in thousands except per share data.

(1) Long-term debt, exclusive of current portion, includes $186.1 million,
$125.3 million, $294.8 million and $23.6 million of hedge accounting
adjustments associated with interest rate swaps at April 27, 2005, April 28,
2004, April 30, 2003 and May 1, 2002, respectively. There were no interest
rate swaps at May 2, 2001. Long-term debt reflects the prospective
classification of Heinz Finance Company's $325 million of mandatorily
redeemable preferred shares from minority interest 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 2005 results from continuing operations include a $64.5 million
non-cash impairment charge for the Company's equity investment in The Hain
Celestial Group, Inc. ("Hain") and a $9.3 million non-cash charge to recognize
the impairment of a cost-basis investment in a grocery industry sponsored
e-commerce business venture. There was no tax benefit associated with these
impairment charges. Fiscal 2005 also includes a $27.0 million pre-tax ($18.0
million after-tax) non-cash asset impairment charge related to the anticipated
disposition of the HAK vegetable product line in Northern Europe early in Fiscal
2006.

Fiscal 2004 results from continuing operations include a gain of $26.3
million ($13.3 million after-tax) related to the disposal of the bakery business
in Northern Europe, costs of $17.1 million pretax ($11.0 million after-tax),
primarily due to employee termination and severance costs related

9

to on-going efforts to reduce overhead costs, and $4.0 million pretax ($2.8
million after-tax) due to the write down of pizza crust assets in the United
Kingdom.

Fiscal 2003 results from continuing operations include costs related to the
Del Monte transaction and costs to reduce overhead of the remaining businesses
totaling $164.6 million pretax ($113.1 million after-tax). These include
employee termination and severance costs, legal and other professional service
costs and costs related to the early extinguishment of debt. In addition, Fiscal
2003 includes losses on the exit of non-strategic businesses of $62.4 million
pretax ($49.3 million after-tax).

Fiscal 2002 results from continuing operations include net restructuring
and implementation costs of $12.4 million pretax ($8.9 million after-tax) for
the Streamline initiative.

Fiscal 2001 results from continuing operations include restructuring and
implementation costs of $101.4 million pretax ($69.0 million after-tax) for the
Streamline initiative, net restructuring and implementation costs of $146.5
million pretax ($91.2 million after-tax) for Operation Excel, a benefit of $93.2
million from tax planning and new tax legislation in Italy, a loss of $94.6
million pretax ($66.2 million after-tax) on the sale of The All American Gourmet
business, company acquisition costs of $18.5 million pretax ($11.7 million
after-tax), the after-tax impact of adopting Staff Accounting Bulletin ("SAB")
No. 101 and Statement of Financial Accounting Standards ("SFAS") No. 133 of
$15.3 million and a loss of $5.6 million pretax ($3.5 million after-tax) which
represents the Company's equity loss associated with The Hain Celestial Group's
fourth quarter results which included charges for its merger with Celestial
Seasonings.

10

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

SPECIAL ITEMS

ASSET IMPAIRMENTS

In the fourth quarter of Fiscal 2005, the Company recognized a non-cash
asset impairment charge of $27.0 million pre-tax ($18.0 million after-tax) on
the HAK vegetable product line in Northern Europe. The charge, which is recorded
as a component of cost of products sold, relates to the anticipated sale of the
product line in early Fiscal 2006.

The Company holds an equity investment in The Hain Celestial Group, Inc.
("Hain"), a natural, specialty and snack food company. Hain shares traded at
less than 80% of Heinz's carrying value since late January 2004. Due to the
length of time and the amount that Hain stock had traded below the Company's
basis, the Company determined that the decline was other-than-temporary as
defined by Accounting Principles Board Opinion No. 18 and as a result,
recognized a $64.5 million non-cash impairment charge during the third quarter
of Fiscal 2005. The charge reduced Heinz's carrying value in Hain to fair market
value as of January 26, 2005, with no resulting impact on cash flows. Heinz
currently owns approximately six million shares of Hain stock, with a book value
of approximately $20.00 per share as of April 27, 2005. In the future, should
the market value of Hain common stock decline and remain below current market
value for a substantial time, the Company could be required to record additional
writedowns of its investment in Hain. The Company also recorded a $9.3 million
non-cash charge in the third quarter of Fiscal 2005 to recognize the impairment
of a cost-basis investment in a grocery industry-sponsored e-commerce business
venture. There was no tax benefit associated with these impairment charges.

DISCONTINUED OPERATIONS

On December 20, 2002, Heinz transferred to a wholly-owned subsidiary ("SKF
Foods") certain assets and liabilities, including its U.S. and Canadian 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 the Company's
consolidated statements of income. Net income from discontinued operations for
the years ended April 27, 2005 and April 28, 2004 was $16.9 million and $25.3
million, respectively, and reflects the favorable settlement of tax liabilities
related to the businesses spun-off to Del Monte on December 20, 2002. The
discontinued operations generated sales of $1,091.3 million and net income of
$88.7 million (net of $35.4 million in tax) for Fiscal 2003.

DIVESTITURES AND OTHER REORGANIZATION COSTS

During the first quarter of Fiscal 2004, the Company sold its bakery
business in Northern Europe for $57.9 million. The transaction resulted in a
pretax gain of $26.3 million ($13.3 million after tax), which was recorded as a
component of selling, general and administrative expenses ("SG&A"). This sale
impacted approximately 70 employees.

During Fiscal 2004, the Company recognized $17.1 million pretax ($11.0
million after tax) of reorganization costs. These costs were recorded as a
component of SG&A and were primarily due to employee termination and severance
costs. Also, during Fiscal 2004, the Company wrote down pizza crust assets in
the United Kingdom totaling $4.0 million pretax ($2.8 million after-tax) which

11

have been included as a component of cost of products sold. Management estimates
that these actions impacted approximately 100 employees.

In Fiscal 2003, Del Monte transaction costs and costs to reduce overhead of
the remaining business totaled $164.6 million pretax ($113.1 million after-tax)
and were comprised of $61.8 million for legal, professional and other related
costs, $51.3 million in employee termination and severance costs, $39.6 million
related to the early retirement of debt, and $12.0 million in non-cash asset
write-downs. Of this amount, $6.1 million was included in cost of products sold,
$118.9 million in SG&A, and $39.6 million in other expense, net. Management
estimates that these actions impacted approximately 400 employees excluding
those who were transferred to Del Monte.

In Fiscal 2003, losses on the exit of non-strategic businesses, primarily
the UK frozen pizza business and a North American fish and frozen vegetable
business, totaled $62.4 million pretax ($49.3 million after-tax), and were
comprised of $39.7 million in non-cash asset write-downs, $12.1 million in
losses on the sale of businesses and $10.6 million in employee termination,
severance and other exit costs. Of these amounts, $47.3 million was included in
cost of products sold and $15.1 million in SG&A. Management estimates that these
actions impacted approximately 600 employees.

During Fiscal 2005, the Company utilized $9.9 million of severance and exit
cost accruals related to reorganization costs.

RESULTS OF CONTINUING OPERATIONS

FISCAL YEARS ENDED APRIL 27, 2005 AND APRIL 28, 2004

Sales for Fiscal 2005 increased $497.8 million, or 5.9%, to $8.91 billion.
Sales were favorably impacted by volume growth of 1.9% and exchange translation
rates of 3.9%. The favorable volume was primarily a result of strong increases
in the North American Consumer Products and U.S. Foodservice segments. Lower
pricing decreased sales by 0.2%, principally due to the restage of our Italian
infant nutrition business, market price pressures impacting the Tegel poultry
business in New Zealand and the trade in Northern Europe, and a $34.1 million
charge for trade spending for the Italian infant nutrition business. The trade
spending charge in the Italian infant nutrition business related to prior years
and reflected an under-accrual quantified as the Company was upgrading trade
management processes and systems in Italy. These price decreases were partially
offset by the North American Consumer Products and U.S. Foodservice segments and
U.K. convenience meals. Acquisitions, net of divestitures, increased sales by
0.3%. Domestic operations contributed approximately 38% of consolidated sales in
Fiscal 2005 and Fiscal 2004.

Gross profit increased $118.1 million, or 3.8%, to $3.21 billion; the gross
profit margin decreased to 36.0% from 36.7%. The decrease in the gross profit
margin is mainly due to increased commodity and fuel costs, lower pricing as
discussed above, increased production costs in the European seafood business and
a $27.0 million non-cash asset impairment charge related to the anticipated
disposition of the HAK vegetable product line in Northern Europe in early Fiscal
2006. The 3.8% increase in gross profit is primarily a result of higher volume
and favorable exchange translation rates. Last year's gross profit was
unfavorably impacted by the write down of U.K. pizza crust assets totaling $4.0
million.

SG&A increased $142.5 million, or 8.3%, to $1.85 billion, and increased as
a percentage of sales to 20.8% from 20.3%. The increase as a percentage of sales
is primarily due to the $26.3 million gain recorded on the sale of the Northern
European bakery business in the prior year and increased Selling and
Distribution costs ("S&D") and General and Administrative expenses ("G&A") in
the current year. The increase in S&D is largely a result of higher fuel and
transportation costs, and the increase in G&A is chiefly due to employee-related
and litigation costs, and professional fees related to various projects across
the Company, including increased administrative costs associated with Section
404 of Sarbanes-Oxley. These increases were partially offset by

12

decreased marketing expense, primarily in Europe. Last year's SG&A was
unfavorably impacted by reorganization costs totaling $17.1 million. Operating
income decreased $24.4 million, or 1.8%, to $1.35 billion.

Total marketing support (recorded as a reduction of revenue or as a
component of SG&A) increased $82.0 million, or 3.4%, to $2.52 billion on a sales
increase of 5.9%. Marketing support recorded as a reduction of revenue,
typically deals and allowances, increased $98.9 million, or 4.6%, to $2.23
billion, which is largely a result of foreign exchange translation rates, the
Italian infant nutrition business, and increased promotional spending in
European seafood and Tegel poultry in New Zealand, partially offset by reduced
trade promotion spending in the U.S. Consumer Products and the U.K. businesses.
Marketing support recorded as a component of SG&A decreased $16.9 million, or
5.7%, to $282.8 million, primarily in the Europe segment.

Net interest expense increased $16.1 million, to $204.7 million. Net
interest expense was unfavorably impacted by higher interest rates during Fiscal
2005, partially offset by the benefits of lower average net debt. Fiscal 2005
income from continuing operations was also unfavorably impacted by the $73.8
million non-cash impairment charges discussed previously. Other expenses, net,
decreased $4.5 million, resulting primarily from the impact of the adoption of
Statement of Financial Accounting Standard ("SFAS") No. 150 (see below for
further discussion) beginning in the second quarter of Fiscal 2004.

The effective tax rate for the current year was 30.5% compared to 33.3%
last year. The reduction in the effective tax rate is attributable to changes to
the capital structure in several foreign subsidiaries, tax credits resulting
from tax planning associated with a change in certain foreign tax legislation,
reduction of the charge associated with remittance of foreign dividends and the
settlement of tax audits, partially offset by the impairment charges and other
operating losses for which no tax benefit can currently be recorded. In
addition, the prior year effective tax rate was unfavorably impacted by 0.4
percentage points due to the sale of the Northern European bakery business.

Income from continuing operations for Fiscal 2005 was $735.8 million
compared to $778.9 million in the prior year, a decrease of 5.5%. Diluted
earnings per share was $2.08 in the current year compared to $2.20 in the prior
year, down 5.5%.

The impact of fluctuating exchange rates for Fiscal 2005 remained
relatively consistent on a line-by-line basis throughout the consolidated
statement of income.

FISCAL YEAR 2005 OPERATING RESULTS BY BUSINESS SEGMENT

NORTH AMERICAN CONSUMER PRODUCTS

Sales of the North American Consumer Products segment increased $191.9
million, or 9.3%, to $2.26 billion. Sales volume increased 5.7% due to
significant growth in Ore-Ida frozen potatoes and SmartOnes frozen entrees,
aided by the introduction of Ore-Ida Extra Crispy Potatoes, new microwavable
Easy Fries, and several new SmartOnes frozen entrees. Strong performance in
Boston Market HomeStyle meals and in the frozen snack brands of Delimex, Bagel
Bites and TGI Friday's, as well as new distribution related to a co-packing
agreement also contributed to the volume increase. Pricing increased sales 2.7%
largely due to reduced trade spending and decreased product placement fees on
SmartOnes frozen entrees and Ore-Ida potatoes as well as increased price related
to Classico pasta sauces and Heinz ketchup. Sales increased 1.6% due to the
prior year acquisition of the Canadian business of Unifine Richardson B.V.,
which manufactures and sells salad dressings, sauces and dessert toppings.
Divestitures reduced sales 1.6% due to the sale of Ethnic Gourmet Food and
Rosetto pasta to Hain in the first quarter. Exchange translation rates increased
sales 0.9%.

13

Gross profit increased $70.0 million, or 8.0%, to $942.8 million driven by
the increase in sales. The gross profit margin decreased to 41.8% from 42.3% due
primarily to higher commodity and fuel costs, partially offset by higher net
pricing. Operating income increased $56.3 million, or 11.9%, to $530.4 million,
due to the increase in gross profit, which was partially offset by higher
selling and distribution costs, related to higher volume and higher fuel costs.
Operating income for Fiscal 2004 was unfavorably impacted by reorganization
costs totaling $5.3 million.

U.S. FOODSERVICE

Sales of the U.S. Foodservice segment increased $75.2 million, or 5.3%, to
$1.50 billion. Sales volume increased sales 2.9% due to growth in Heinz ketchup,
strong performance on Truesoups frozen soup and growth in custom recipe tomato
products. Higher pricing increased sales by 1.5%, as price increases were
initiated to offset fuel and commodity cost pressures. Acquisitions increased
sales 0.9%, due to the prior year acquisition of Truesoups LLC, a manufacturer
and marketer of premium frozen soups.

Gross profit increased $48.1 million, or 11.8%, to $457.4 million, and the
gross profit margin increased to 30.4% from 28.6%. The gross profit margin
increase was primarily due to favorable pricing, partly offset by increases in
commodity costs. Operating income increased $13.7 million, or 6.5%, to $224.8
million, related to the growth in gross profit, which was partially offset by
increased selling and distribution costs, related to a substantial increase in
fuel and trucking costs. Operating income for Fiscal 2004 was unfavorably
impacted by reorganization costs totaling $3.9 million.

EUROPE

Heinz Europe's sales increased $159.6 million, or 4.9%, to $3.45 billion.
Favorable exchange translation rates increased sales by 7.5%. Volume decreased
0.3% as increases in Heinz ketchup resulting from the successful introduction of
the Top Down bottle, increases in frozen desserts in the U.K., share gains from
the successful restage of the Italian infant nutrition business, new products in
U.K. frozen potatoes and increases in Heinz ready-to-serve soups were offset by
declines in European seafood, frozen entrees in the U.K. and jarred vegetables
in Northern Europe. Lower pricing decreased sales 1.8%, primarily due to the
restage of the Italian infant nutrition business, the trade spending charge in
the Italian infant nutrition business and increased promotional activity in The
Netherlands. The $34.1 million trade spending charge in the Italian infant
nutrition business related to prior years and reflected an under-accrual
quantified as the Company was upgrading trade management processes and systems
in Italy. These decreases were partially offset by price increases in Heinz
beans and ready-to-serve soups in the U.K. Divestitures reduced sales 0.6%.

Gross profit decreased $21.2 million, or 1.7%, to $1.24 billion, and the
gross profit margin decreased to 36.1% from 38.5%. The decrease in gross profit
margin is primarily related to lower pricing as discussed above, increased
commodity and production costs, particularly in the European seafood and the UK
businesses and a $27.0 million asset impairment charge related to the HAK
vegetable product line in Northern Europe. These decreases were partially offset
by supply chain improvements in The Netherlands. Gross profit in Fiscal 2004 was
unfavorably impacted by the write-down of the U.K. pizza crust assets totaling
$4.0 million. Operating income decreased $88.6 million, or 13.9%, to $550.6
million, largely due to the decrease in gross profit, the gain recognized in the
prior year on the sale of the Northern European bakery business, and increased
G&A. The increase in G&A is largely due to increased pension costs, litigation
costs and professional fees from various projects across Europe.

ASIA/PACIFIC

Sales in Asia/Pacific increased $49.1 million, or 3.9%, to $1.31 billion.
Favorable exchange translation rates increased sales by 4.4%. Volume increased
sales 0.5%, chiefly due to new product introductions in the frozen foods and
convenience meals categories in the Australia and New
14

Zealand businesses. These were partially offset by the discontinuation of an
Indonesian energy drink and volume declines in Tegel poultry and China. The
volume decline in China was due primarily to an industry-related recall issue
pertaining to the colorant Sudan I. Lower pricing reduced sales 2.0% primarily
due to market price pressures on Tegel poultry. The acquisition of Shanghai
LongFong Foods, a maker of popular frozen Chinese snacks and desserts, increased
sales 2.3%. The divestiture of a Korean oils and fats product line reduced sales
1.3%.

Gross profit increased $5.6 million, or 1.4%, to $416.1 million. The gross
profit margin decreased to 31.8% from 32.6%. The decrease in gross profit margin
is primarily due to lower pricing and increased commodity costs, partially
offset by cost improvements in Australia and New Zealand. Operating income
decreased $10.6 million, or 7.3%, to $135.6 million, primarily due to increased
SG&A, resulting primarily from exchange translation rates and increased volume.

OTHER OPERATING ENTITIES

Sales for Other Operating Entities increased $22.0 million, or 5.9%, to
$396.6 million. Volume increased 1.2% due primarily to strong sales of ketchup
and beverages in India and new product launches in Latin America, partially
offset by lower sales in Israel, following a product recall in the third quarter
of Fiscal 2004. Lower pricing reduced sales by 2.2%, mainly due to decreases in
Latin America as a result of market price pressures and price declines in Israel
resulting from the effects of the recall. The prior year acquisition of a frozen
food business in South Africa increased sales by 5.8%. Exchange translation
rates increased sales 1.0%.

Gross profit increased $7.7 million, or 6.4%, to $127.9 million. Operating
income increased $4.8 million, primarily due to the acquisition in South Africa.

Zimbabwe remains in a period of economic uncertainty. Should the current
situation continue, the Company could experience disruptions and delays in its
Zimbabwean operations. As of the end of November 2002, the Company
deconsolidated its Zimbabwean operations and classified its remaining net
investment of approximately $110 million as a cost investment included in other
non-current assets on the consolidated balance sheets. Although the Company's
business continues to operate profitably and is able to source raw materials,
the country's economic situation remains uncertain and there are government
restrictions on the repatriation of earnings. The Company's ability to recover
its investment could become impaired if the economic and political uncertainties
continue to deteriorate.

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

Sales for Fiscal 2004 increased $177.7 million, or 2.2%, to $8.41 billion.
Sales were favorably impacted by volume of 0.4% and exchange translation rates
of 7.3%. The favorable volume impact is primarily due to strong increases in the
U.S. Foodservice and Asia/Pacific segments. These increases were partially
offset by the impact of Stock Keeping Unit ("SKU") rationalization and declines
in Europe, relating primarily to a reduction in promotional support and trade
inventories in advance of a major restage of the Italian infant feeding business
in Fiscal 2005. Lower pricing decreased sales by 0.3%, primarily reflecting the
Company's goal to achieve more competitive net pricing under the Every Day Low
Pricing strategy in the U.S. retail businesses as well as market price pressure
in the Tegel poultry business in New Zealand. Divestitures, net of acquisitions,
reduced sales 5.3% due primarily to the deconsolidation of Zimbabwe in the third
quarter of Fiscal 2003. Domestic operations contributed approximately 38% of
consolidated sales in Fiscal 2004 and Fiscal 2003.

Gross profit increased $155.8 million, or 5.3%, to $3.09 billion, and the
gross profit margin increased to 36.7% from 35.6%. The gross profit margin
increase was primarily driven by the Company's continuing focus on process and
system improvements, productivity initiatives and elimination of less profitable
SKU's. These gains were partially offset by lower overall net pricing for the
Company and increased supply chain costs in the European seafood business. The
aggre-
15

gate increase in gross profit also benefited from favorable exchange translation
rates, partially offset by the impact of higher pension costs, divestitures and
the write down of U.K. pizza crust assets in the U.K. For Fiscal 2003, gross
profit was also impacted by Del Monte transaction-related costs and costs to
reduce overhead of the remaining businesses of $6.1 million, and losses on the
exit of non-strategic businesses of $47.3 million.

SG&A decreased $49.7 million, or 2.8%, to $1.71 billion, and, as a
percentage of sales, was reduced to 20.3% from 21.4%. The decrease was primarily
due to the gain recorded on the sale of the Northern European Bakery business in
Fiscal 2004, and decreased marketing expense primarily in the North American
Consumer Products segment reflecting the Company's goal to achieve more
competitive net pricing as discussed above. Additionally, SG&A was impacted in
Fiscal 2004 by reorganization costs of $17.1 million, and in Fiscal 2003 by Del
Monte transaction-related costs and costs to reduce overhead of the remaining
businesses of $118.9 million, and losses on the exit of non-strategic businesses
of $15.1 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) increased $179.4 million, or 8.0%, to $2.44 billion on a
sales increase of 2.2%. Marketing support recorded as a reduction of revenue
increased $179.0 million, or 9.1%, to $2.14 billion, which is primarily a result
of the Company's goal to achieve more competitive net pricing under the Every
Day Low Pricing strategy. Marketing support recorded as a component of SG&A
increased by $0.4 million, or 0.1%, to $299.7 million, as most marketing
resources were focused on sharpening retail price points.

Operating income increased $205.4 million, or 17.5%, to $1.38 billion, and
increased as a percentage of sales to 16.4% from 14.3% as a result of the
changes noted above.

Net interest expense decreased $3.9 million, to $188.5 million, due to
lower debt balances and lower interest rates. This decrease was partially offset
by the prospective classification of the Heinz Finance Company's dividend on its
mandatorily redeemable preferred shares to interest expense from other expense.
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. Other
expense, net, decreased $90.4 million, to $22.2 million, attributable to a $39.6
million pretax charge related to early retirement of debt in Fiscal 2003,
decreased minority interest expense as a result of the Zimbabwe deconsolidation,
the SFAS No. 150 reclassification previously discussed and increased equity
income. The effective tax rate for Fiscal 2004 was 33.3% compared to 36.1% for
Fiscal 2003 due primarily to improved country mix and effective tax planning.
The Fiscal 2004 effective tax rate was unfavorably impacted by 0.4 percentage
points due to the sale of the Northern European bakery business and the Fiscal
2003 effective tax rate was unfavorably impacted by 1.6 percentage points due in
part to the loss on the disposal of a North American fish and vegetable
business.

Income from continuing operations for Fiscal 2004 was $778.9 million
compared to $555.4 million in Fiscal 2003 (before the cumulative effect of
change in accounting principle related to the adoption of SFAS No. 142). Diluted
earnings per share was $2.20 in Fiscal 2004 compared to $1.57 in Fiscal 2003
(before the cumulative effect of change in accounting principle related to the
adoption of SFAS No. 142).

The impact of fluctuating exchange rates for Fiscal 2004 remained
relatively consistent on a line-by-line basis throughout the consolidated
statement of income.

FISCAL YEAR 2004 OPERATING RESULTS BY BUSINESS SEGMENT

NORTH AMERICAN CONSUMER PRODUCTS

Sales of the North American Consumer Products segment decreased $49.1
million, or 2.3%. Sales volume decreased 0.2% as strong increases in Heinz
ketchup and frozen potatoes were more

16

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
1.6% 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. Sales increased 0.4% due to
the Canadian acquisition of Unifine Richardson B.V., which manufactures and
sells salad dressings, sauces, and dessert toppings. Divestitures in Fiscal 2003
reduced sales 2.9% and favorable exchange translation rates increased sales
1.9%.

Gross profit decreased $2.9 million, or 0.3%, to $872.8 million; the gross
profit margin increased to 42.3% from 41.4% 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 $82.5 million, or 21.1%, to $474.1
million, primarily due to decreased consumer marketing expenses related to the
Fiscal 2003 launch of Easy Squeeze!, Boston Market frozen entrees and Hot Bites
snacks, and Ore-Ida Funky Fries. In addition, Fiscal 2004 operating income was
unfavorably impacted by reorganization costs of $5.3 million and Fiscal 2003
operating income was unfavorably impacted by Del Monte transaction-related costs
and costs to reduce overhead of the remaining businesses and losses on the exit
of non-strategic businesses of $60.9 million.

U.S. FOODSERVICE

U.S. Foodservice's sales increased $113.2 million, or 8.6%. Sales volume
increased sales 2.4% 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 2.7%
chiefly due to Heinz ketchup and single serve condiments. Acquisitions, net of
divestitures, increased sales 3.6%, primarily due to the acquisition of
Truesoups LLC, a manufacturer and marketer of premium frozen soups.

Gross profit increased $34.8 million, or 9.3%, to $409.3 million, and the
gross profit margin increased slightly to 28.6% from 28.5%. These increases were
primarily due to favorable pricing and sales mix, partially offset by higher
commodity costs. In addition, reorganization costs unfavorably impacted gross
profit by $1.1 million for Fiscal 2003. Operating income increased $19.4
million, or 10.1%, to $211.1 million, primarily due to the growth in gross
profit, partially offset by the impact of higher sales volume on S&D and
increased 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 and losses on the exit of
non-strategic businesses unfavorably impacted operating income by $5.9 million
for Fiscal 2003.

EUROPE

Heinz Europe's sales increased $251.2 million, or 8.3%. Favorable exchange
translation rates increased sales by 12.2%. Volumes declined 1.4% due to
decreases in Italian infant feeding, in advance of a restaging in early Fiscal
2005, and in convenience meals, due to promotional timing and the impact of our
previously announced program to reduce low-margin SKU's. These decreases were
partially offset by increases in Heinz ketchup from the successful introduction
of the top-down bottle, Heinz salad cream, Petite Navire seafood due to the
rebound from the prior year recall and frozen food products. Pricing decreased
0.3% as price increases on Heinz beans, ready-to-serve soups, and pasta meals
were offset by increased trade promotion spending related to seafood. Also,
prices were lower in Northern Europe as a result of The Netherland's largest
retailer rolling back prices in excess of 8% beginning in the second quarter of
Fiscal 2004. Divestitures reduced sales
17

2.2%, primarily related to the sale of the U.K. frozen pizza business, the
Northern European bakery business and a foodservice business in Italy.

Gross profit increased $128.8 million, or 11.3%, to $1,264.8 million, and
the gross profit margin increased to 38.5% from 37.4%. The increase in gross
profit is primarily due to favorable exchange translation rates, partially
offset by increased supply chain costs in our European seafood business, the
volume-related impact of reduced promotions in Heinz's Italian baby food
business, the impact of divestitures and the write down of the U.K. pizza
assets. Additionally, gross profit was unfavorably impacted by $47.4 million for
reorganization costs and losses on the exit of non-strategic businesses in
Fiscal 2003. Operating income increased $97.4 million, or 18.0%, to $639.2
million, primarily attributable to the favorable change in gross profit and the
gain on the sale of the Northern European bakery business, partially offset by
increased G&A expense primarily related to increased pension expense in the U.K.
Operating income was unfavorably impacted by $58.9 million for reorganization
costs and losses on the exit of non-strategic businesses in Fiscal 2003.

ASIA/PACIFIC

Sales in Asia/Pacific increased $179.7 million, or 16.7%. Favorable
exchange translation rates increased sales by 16.2%. Volume increased sales 2.6%
primarily due to strong sales of Heinz ketchup, Tegel poultry in New Zealand,
Heinz soups in Australia and ABC sauces in Indonesia. Lower pricing decreased
sales 1.8% related to lower prices on Tegel poultry in New Zealand, partially
offset by price increases in Indonesia on ABC sauces and juice concentrates.
Divestitures, net of acquisitions, reduced sales 0.5%.

Gross profit increased $67.9 million, or 19.8%, to $410.5 million, and the
gross profit margin increased to 32.6% from 31.8%. These increases were
primarily due to favorable exchange translation rates and supply chain
improvements in our Australian and Wattie's businesses, partially offset by
Tegel poultry's lower pricing and higher commodity costs. Operating income
increased $45.7 million, or 45.5%, to $146.2 million, primarily due to the
growth in gross profit and G&A reductions in our Australian and Wattie's
businesses, partially offset by the impact of exchange translation rates on SG&A
expenses. Additionally, operating income was unfavorably impacted by
reorganization costs of $6.6 million in Fiscal 2003.

OTHER OPERATING ENTITIES

Sales for Other Operating Entities decreased $317.3 million, or 45.9%,
primarily due to the deconsolidation of the Company's Zimbabwe operations in
Fiscal 2003. The deconsolidation also impacted gross profit and operating
income. Gross profit decreased $83.1 million, or 40.9%, to $120.2 million, and
operating income decreased $81.3 million, or 73.1%, to $29.9 million. Excluding
the Zimbabwe operations in Fiscal 2003, sales increased 14.3%, primarily due to
volume increases of 6.2%, and operating income decreased 15.3%. Other than the
impact of Zimbabwe, the other significant impact on operating income was the
recall in the third quarter of Fiscal 2004 of a soy-based infant formula product
sold under the Remedia brand in Israel.

LIQUIDITY AND FINANCIAL POSITION

The following discussion of liquidity and financial position references the
business measures of operating free cash flow and net debt as defined below.
These measures are utilized by senior management and the board of directors to
gauge our business operating performance, and management believes these measures
provide clarity in understanding the trends of the business. Management, and
investors, can benefit from the use of the operating free cash flow measure as
it provides cash flow derived from product sales and the short-term application
of cash, including the effect of capital expenditures.

18

The limitation of operating free cash flow is that it adjusts the GAAP
measure-cash flow from operations for cash used for capital expenditures that is
no longer available to the Company for other purposes. Management compensates
for this limitation by using the GAAP operating cash flow number as well.
Operating free cash flow does not represent residual cash flow available for
discretionary expenditures and does not provide insight into the entire scope of
the historical cash inflows or outflows of our operations that are captured in
the other cash flow measures reported in the statement of cash flows.

The Company's primary measure of cash flow performance is operating free
cash flow (cash provided by operating activities less capital expenditures). The
following is the Company's calculation of operating free cash flow for the years
ended April 27, 2005, April 28, 2004 and April 30, 2003 (amounts in millions):

Cash provided by continuing operating activities in Fiscal 2005 was $1.16
billion, a decrease of $88.2 million from the prior year. The decrease in Fiscal
2005 versus Fiscal 2004 is primarily due to a planned tax pre-payment of $125
million made in Europe during the third quarter and working capital movements,
particularly inventories, partially offset by lower contributions to the
Company's pension plans in Fiscal 2005. While we continue to make progress in
reducing our cash conversion cycle (six days lower than a year ago), the rate of
improvement has lessened when compared to last fiscal year, as expected.

Cash used for investing activities totaled $264.1 million compared to
$301.1 million last year. Proceeds from divestitures provided $51.2 million in
Fiscal 2005 and related primarily to the sale of an oil and fats product line in
Korea, which was completed during the third quarter. Acquisitions used $126.5
million in Fiscal 2005 primarily related to the Company's purchase in the fourth
quarter of Appetizer's And, Inc., a manufacturer and marketer of high-quality,
frozen hors d'oeuvres sold primarily to the U.S. foodservice industry, and in
the third quarter of a controlling interest in Shanghai LongFong Foods, a maker
of frozen Chinese snacks and desserts. In Fiscal 2004, acquisitions, net of
divestitures, used $41.7 million in cash. Capital expenditures totaled $240.7
million (2.7% of sales) in Fiscal 2005 compared to $232.0 million (2.8% of
sales) last year.

Cash used for financing activities totaled $1.05 billion compared to $643.9
million last year. Payments on long-term debt were $480.5 million during Fiscal
2005, compared to $74.3 million last year. Proceeds from short-term borrowings
were $26.5 million in Fiscal 2005, compared to payments of $144.7 million in the
prior year. Cash used for the purchases of treasury stock, net of proceeds from
option exercises, was $212.0 million in Fiscal 2005, compared to $57.4 million
in the prior year, in line with the Company's strategy of flat or reduced fully
diluted shares. Dividend payments totaled $398.9 million, compared to $379.9
million last year, reflecting a 5.5% increase in the annual dividend per share
on common stock.

On May 18, 2005, the Company announced that is Board of Directors approved
a 5.3% increase in the annual dividend on common stock for Fiscal 2006 (from
28.5 cents to 30 cents per quarter), effective with the July 2005 dividend.
Fiscal 2006 dividends are expected to approximate $410 million.

Net debt is an additional measure that management utilizes to judge our
liquidity and financial condition. Net debt is defined as total debt, net of the
value of interest rate swaps, less cash and

19

cash equivalents and short-term investments. The following is the Company's
calculation of net debt as of April 27, 2005 and April 28, 2004 (amounts in
millions):

Overall, net debt decreased $243.6 million, or 6.6%, versus prior year.
Long-term debt decreased $296.2 million from the prior year primarily due to the
repayment of $480 million of debt in Fiscal 2005; offset by increases in debt as
a result of higher foreign exchange rates and debt assumed through acquisitions.
At April 27, 2005, the Company's net debt was $3.4 billion. Excluding the
reclassification of H.J. Heinz Finance Company's $325 million of preferred stock
and the impact of the changes in foreign exchange on net debt, the Company's net
debt would have been $3.1 billion, a decrease of $2.3 billion since the
beginning of Fiscal 2003. The Company anticipates that it will have additional
long-term debt reductions in Fiscal 2006, principally the retirement of E417.9
million of bonds ($540.6 million) which mature in April 2006.

Return on average shareholders' equity ("ROE") is calculated by taking net
income divided by average shareholders' equity. Average shareholders' equity is
a five-point quarterly average. ROE was 34.4% in Fiscal 2005, 51.6% in Fiscal
2004 and 34.7% in Fiscal 2003. ROE in Fiscal 2005 was unfavorably impacted by
increased average equity reflecting fluctuations in foreign exchange. In
addition, ROE was unfavorably impacted by 4.2% in Fiscal 2005 related to the
asset impairment charges. ROE was unfavorably impacted by 9.9% in Fiscal 2003
related to Del Monte transaction related costs, costs to reduce overhead of the
remaining business and losses on the exit of non-strategic businesses.

Pretax return on average invested capital ("ROIC") is calculated by taking
net operating profit before income taxes divided by average invested capital.
Net operating profit before income taxes excludes net interest expense. Average
invested capital is a five-point quarterly average of debt plus total equity
less cash and cash equivalents and short-term investments. ROIC was 21.7% in
Fiscal 2005, 24.5% in Fiscal 2004 and 19.0% in Fiscal 2003. ROIC was unfavorably
impacted by 1.7% in Fiscal 2005 related to the asset impairment charges for the
HAK vegetable product line, the equity investment in Hain and the cost-basis
investment in a grocery industry-sponsored e-commerce business venture. ROIC was
favorably impacted by 0.1% in Fiscal 2004 related to the gain on the disposal of
a bakery business in Northern Europe offset by reorganization costs and the
write down of pizza crust assets in the United Kingdom. ROIC was unfavorably
impacted by 3.5% in Fiscal 2003 related to Del Monte transaction related costs,
costs to reduce overhead of the remaining business and losses on the exit of
non-strategic businesses.

In August 2004, the Company and H.J. Heinz Finance Company amended their
$600 million 364-Day Credit Agreement and their $1.5 billion Five-Year Credit
Agreement by combining the agreements into a $2.0 billion Five-Year Credit
Agreement, expiring August 2009. The Credit Agreement supports the Company's
commercial paper borrowings and the remarketable securities. As a result, these
borrowings are classified as long-term debt based upon the Company's intent and
ability to refinance these borrowings on a long-term basis. In addition, the
Company has $1.1 billion of foreign lines of credit available at April 27, 2005.
These resources, the Company's year-end

20

cash balance of more than $1 billion, strong operating cash flow and access to
the capital market, if required, should enable the Company to meet its cash
requirements for operations, including capital expansion programs, debt
maturities, stock repurchases and dividends to shareholders.

At April 27, 2005, the Company's long-term debt ratings were A at Standard
& Poor's and Fitch and A-3 at Moody's, and the Company's short-term debt ratings
were A-1 at Standard & Poor's, F-1 at Fitch and P-2 at Moody's.

In Fiscal 2005, cash required for reorganization costs was approximately
$9.9 million. Fiscal 2006 cash requirements related to reorganization costs to
streamline the Company's organization structure, primarily in Europe, are
expected to approximate $75 to $100 million. Additionally, the Company is
reexamining its portfolio strategy which could result in the disposition of
several non-core businesses, the proceeds of which could approximate $1 billion.
If implemented, these proceeds could be used for debt reduction, share
repurchases, acquisitions and operations.

CONTRACTUAL OBLIGATIONS AND OTHER COMMITMENTS

CONTRACTUAL OBLIGATIONS

The Company is obligated to make future payments under various contracts
such as debt agreements, lease agreements and unconditional purchase
obligations. In addition, the Company has purchase obligations for materials,
supplies, services and property, plant and equipment as part of the 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
the Company's materials and processes, certain supply contracts contain penalty
provisions for early terminations. The Company 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.

The following table represents the contractual obligations of the Company
as of April 27, 2005.

Other long-term liabilities primarily consist of certain specific incentive
compensation arrangements and pension and postretirement benefit commitments.
The following long-term liabilities included on the consolidated balance sheet
are excluded from the table above: interest payments, income taxes, minority
interest and insurance accruals. The Company is unable to estimate the timing of
the payments for these items.

OFF-BALANCE SHEET ARRANGEMENTS AND OTHER COMMITMENTS

The Company does not have material financial guarantees or other
contractual commitments that are reasonably likely to adversely affect
liquidity. In addition, the Company does not have any related party transactions
that materially affect the results of operations, cash flow or financial
condition.

21

MARKET RISK FACTORS

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

FOREIGN EXCHANGE RATE SENSITIVITY: The Company's cash flow and earnings
are subject to fluctuations due to exchange rate variation. Foreign currency
risk exists by nature of the Company's global operations. The Company
manufactures and sells its products in a number of locations around the world,
and hence foreign currency risk is diversified.

The Company may attempt to limit its exposure to changing foreign exchange
rates through both operational and financial market actions. These actions may
include entering into forward or option contracts to hedge existing exposures,
firm commitments and forecasted transactions. The instruments are used to reduce
risk by essentially creating offsetting currency exposures. The following table
presents information related to foreign currency contracts held by the Company:

As of April 27, 2005, the Company's contracts to hedge forecasted
transactions mature in one year. Contracts that meet qualifying criteria 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/loss and is recognized in earnings 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 income and expense.

Substantially all of the Company's foreign affiliates' financial
instruments are denominated in their respective functional currencies.
Accordingly, exposure to exchange risk on foreign currency financial instruments
is not material. (See Note 13 to the consolidated financial statements.)

INTEREST RATE SENSITIVITY: The Company is exposed to changes in interest
rates primarily as a result of its borrowing and investing activities used to
maintain liquidity and fund business operations. The nature and amount of the
Company's long-term and short-term debt can be expected to vary as a result of
future business requirements, market conditions and other factors. The Company's
net debt obligations totaled $3.43 billion and $3.67 billion at April 27, 2005
and April 28, 2004, respectively. The Company's debt obligations are summarized
in Note 7 to the consolidated financial statements.

In order to manage interest rate exposure, the Company 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 27, 2005, a variance of 1/8% in the related interest rate
would cause annual interest expense related to

22

this debt to change by approximately $3.6 million. The following table presents
additional information related to interest rate contracts designated as fair
value hedges by the Company:

The Company had interest rate contracts with total notional amounts of
$107.6 million and $907.6 million at April 27, 2005 and April 28, 2004,
respectively, that did not meet the criteria for hedge accounting but
effectively mitigated interest rate exposures. These derivatives are accounted
for on a full mark-to-market basis through current earnings and they mature
approximately three years from the current fiscal year-end. Net unrealized
gains/(losses), which are presented as a component of other noncurrent
assets/liabilities, related to these interest rate contracts totaled $(2.5)
million and $4.5 million at April 27, 2005 and April 28, 2004, respectively.

EFFECT OF HYPOTHETICAL 10% FLUCTUATION IN MARKET PRICES: As of April 27,
2005, the potential gain or loss in the fair value of the Company's outstanding
foreign currency contracts and interest rate contracts assuming a hypothetical
10% fluctuation in currency rates and swap 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 2004, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 123(R), "Share-Based Payment", which revises SFAS No. 123, "Accounting
for Stock-Based Compensation" and supersedes APB Opinion No. 25, "Accounting for
Stock Issued to Employees". This Statement focuses primarily on accounting for
transactions in which an entity compensates employee services through
share-based payments. This Statement requires an entity to measure the cost of
employee services received in exchange for an award of equity instruments based
on the grant-date fair value of the award. That cost will be recognized over the
period during which an employee is required to provide service in exchange for
the reward. On April 18, 2005, the Securities and Exchange Commission adopted a
new rule that amended the compliance dates of SFAS No. 123(R) to require the
implementation no later than the beginning of the first fiscal year beginning
after June 15, 2005. Early adoption of the Statement is permissable. The Company
plans on adopting this Statement in Fiscal 2007.

In December 2004, the FASB issued FASB Staff Position ("FSP") No. FAS
109-2, "Accounting and Disclosure Guidance for the Foreign Earnings Repatriation
Provision within the American Jobs Creation Act of 2004". The FSP provided
guidance on the accounting and disclosures for the temporary repatriation
provision of the American Jobs Creation Act. The Company has adopted the
disclosure provisions of the FSP which apply to entities that have not yet
completed their

23

evaluation of the repatriation provision, and will expand its disclosures in
accordance with the FSP upon completion of the final evaluation.

In November 2004, the FASB issued SFAS No. 151, "Inventory Costs, an
amendment of ARB No. 43, Chapter 4". This Statement is meant to eliminate any
narrow differences existing between the FASB standards and the standards issued
by the International Accounting Standards Board by clarifying that any abnormal
idle facility expense, freight, handling costs and spoilage be recognized as
current-period charges. This Statement is required to be adopted by the Company
in the first quarter of Fiscal 2007; however, early application is permitted.
The Company does not expect the adoption of this Statement to have a material
impact on results of operations, financial position or cash flows.

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 January 2005, final Medicare
prescription drug rules were issued. The adoption of the Act during Fiscal 2005
resulted in a reduction of the Company's benefit obligation of approximately
$18.8 million and has been reflected as an actuarial gain. The total reduction
in benefit cost for Fiscal 2005 is $2.3 million, comprised of $0.9 million of
interest cost, $0.1 million of service cost, and $1.4 million reduction in
unrecognized loss amortization, recognized on a pro-rata basis.

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 the Company for the second quarter of
Fiscal 2004. The adoption of SFAS No. 150 required the prospective
classification of H. J. Heinz Finance Company's $325 million of mandatorily
redeemable preferred shares from minority interest to long-term debt and the
$5.1 million quarterly preferred dividend from other expenses to interest
expense beginning in the second quarter ended October 29, 2003, with no
resulting effect on the Company's profitability.

DISCUSSION OF SIGNIFICANT ACCOUNTING ESTIMATES

In the ordinary course of business, the Company 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. The Company believes that the following discussion
addresses the Company's most critical accounting policies, which are those that
are most important to the portrayal of the Company'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 the Company's products and are critical to the support of the
business. Trade promotion costs include amounts paid to retailers to offer
temporary price reductions for the sale of the Company'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 an estimate of the expected levels of performance of the trade
promotion, which is dependent upon factors such as historical trends with
similar promotions, expectations regarding customer participation, and sales and
payment trends with similar previously offered programs. Our original estimated
costs of trade promotions may change in the future as a result of changes in
customer participation, particularly for new programs and for programs related
to the introduction of new products. We

24

perform monthly and quarterly evaluations of our outstanding trade promotions;
making adjustments, where appropriate, to reflect changes in our estimates.
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 the Company. 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 the Company's customers for amounts
they consider due to them. Final determination of the permissible deductions may
take extended periods of time and could have a significant impact on the
Company's results of operations depending on how actual results of the programs
compare to original estimates.

We offer coupons to consumers in the normal course of our business. Costs
associated with this activity, which we refer to as coupon redemption costs, are
accrued in the period in which the coupons are offered. The initial estimates
made for each coupon offering are based upon historical redemption experience
rates for similar products or coupon amounts. We perform subsequent estimates
that compare our actual redemption rates to the original estimates. We review
the assumptions used in the valuation of the estimates and determine an
appropriate accrual amount. Adjustments to our initial accrual may be required
if our actual redemption rates vary from our estimated redemption rates.

Inventories -- Inventories are stated at the lower of cost or market value.
Cost is principally determined by the average cost method. The Company 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, either favorably or unfavorably, from actual
requirements if future economic conditions, customer inventory levels or
competitive conditions differ from our expectations.

Investments and Long-lived Assets and Property, Plant and
Equipment -- Investments and long-lived assets are recorded at their respective
cost basis on the date of acquisition. Buildings, equipment and leasehold
improvements are depreciated on a straight-line basis over the estimated useful
life of such assets. The Company reviews investments and long-lived assets,
including intangibles with finite useful lives, and property, plant and
equipment, whenever circumstances change such that the indicated recorded value
of an asset may not be recoverable or has suffered an other than temporary
impairment. Factors that may affect recoverability include changes in planned
use of equipment or software, the closing of facilities and changes in the
underlying financial strength of investments. The estimate of current value
requires significant management judgment and requires assumptions that can
include: future volume trends, revenue and expense growth rates and foreign
exchange rates developed in connection with the Company's internal projections
and annual operating plans, and in addition, external factors such as market
devaluation and inflation which are developed in connection with the Company's
longer-term strategic planning. As each is management's best estimate on then
available information, resulting estimates may differ from actual cash flows.

Goodwill and Indefinite Lived Intangibles -- Carrying values of goodwill
and intangible assets with indefinite lives are reviewed for impairment at least
annually, or when circumstances indicate that a possible impairment may exist,
in accordance with SFAS No. 142, "Goodwill and Other Intangible Assets."
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. The
Company's measure of impairment is based on a discounted cash flow model that
requires significant judgment and requires assumptions about future volume
trends, revenue and expense growth rates and foreign exchange rates developed in
connection with the Company's internal projections and annual operating plans,
and in addition, external factors such as changes in macroeconomic trends and
cost of capital developed in connection with the Company's longer-term strategic
planning. Inherent in estimating future performance, in particular assumptions
regarding external factors such as capital markets, are
25

uncertainties beyond the Company's control. Management believes that because
fair values of goodwill and intangible assets with indefinite lives
significantly exceed carrying value, it is unlikely that a material impairment
charge would be recognized.

Retirement Benefits -- The Company sponsors pension and other retirement
plans in various forms covering substantially all employees who meet eligibility
requirements. Several statistical and other factors that attempt to anticipate
future events are used in calculating the expense and liability related to the
plans. These factors include assumptions about the discount rate, expected
return on plan assets, turnover rates and rate of future compensation increases
as determined by the Company, within certain guidelines. The discount rate
assumptions used to value pension and postretirement benefit obligations reflect
the rates available on high quality fixed income investments available (in each
country that the Company operates a benefit plan) as of the measurement date.
The weighted average discount rate used to measure the projected benefit
obligation for the year ending April 27, 2005 was reduced to 5.5% from 5.8% as
of April 28, 2004.

Over time, the expected rate of return on pension plan assets should
approximate the actual long-term returns. In developing the expected rate of
return, the Company considers actual real historic returns on asset classes, the
investment mix of plan assets, investment manager performance and projected
future returns of asset classes developed by respected consultants. The weighted
average expected rate of return on plan assets used to calculate annual expense
was 8.2% for the years ended April 27, 2005 and April 28, 2004 and 8.9% for the
year ended April 30, 2003. For purposes of calculating Fiscal 2006 expense, the
weighted average rate of return will remain at approximately 8.2%.

In addition, the Company's actuarial consultants also use subjective
factors such as withdrawal and mortality rates to estimate these elements. The
actuarial assumptions used by the Company may differ materially from actual
results due to changing market and economic conditions, higher or lower
withdrawal rates or longer or shorter life spans of participants. These
differences may result in a significant impact to the amount of pension expense
recorded by the Company.

SENSITIVITY OF ASSUMPTIONS

If we assumed a 100 basis point change in the following assumptions, our
Fiscal 2005 projected benefit obligation and expense would increase (decrease)
by the following amounts (in millions):

Income Taxes -- The Company computes its annual tax rate based on the
statutory tax rates and tax planning opportunities available to it in the
various jurisdictions in which it earns income. Significant judgment is required
in determining the Company's annual tax rate and in evaluating its tax
positions. The Company establishes reserves when it becomes probable that a tax
return position that it considers supportable may be challenged and that the
Company may not succeed in completely defending that challenge. The Company
adjusts these reserves in light of changing facts and circumstances, such as the
settlement of a tax audit. The Company's annual tax rate includes the impact of
reserve provisions and changes to reserves. While it is often difficult to
predict the final outcome or the timing of resolution of any particular tax
matter, the Company believes that
26

its reserves reflect the probable outcome of known tax contingencies. Favorable
resolution would be recognized as a reduction to the Company's annual tax rate
in the year of resolution. The Company's tax reserves are presented in the
balance sheet principally within accrued income taxes.

The Company records valuation allowances to reduce deferred tax assets to
the amount that is more likely than not to be realized. When assessing the need
for valuation allowances, the Company considers future taxable income and
ongoing prudent and feasible tax planning strategies. Should a change in
circumstances lead to a change in judgment about the realizability of deferred
tax assets in future years, the Company would adjust related valuation
allowances in the period that the change in circumstances occurs, along with a
corresponding increase or charge to income.

The American Jobs Creation Act ("the AJCA") provides a deduction of 85% on
certain foreign earnings repatriation. The Company may elect to apply this
provision in Fiscal 2006. The Company does not expect to be able to complete its
evaluation of the effects of the repatriation provisions until after the
Treasury Department provides additional guidance on key elements of the
provision. The Company expects to complete its evaluation within a reasonable
period of time after final guidance is issued. The range of amounts that the
Company is currently considering for repatriation under this provision is
between zero and $750 million. The related potential range of income tax (based
upon our expectation of how certain technical issues will be resolved in the
final guidance) is between zero and $20 million.

The AJCA provides a deduction calculated as a percentage of qualified
income from manufacturing in the United States. The percentage increases from 3%
to 9% over a 6 year period beginning with the Company's 2006 fiscal year. In
December 2004, the FASB issued a new staff position providing for this deduction
to be treated as a special deduction, as opposed to a tax rate reduction, in
accordance with SFAS No. 109. The benefit of this deduction is not expected to
have a material impact on the Company's effective tax rate in Fiscal 2006.

INFLATION

In general, costs are affected by inflation and the effects of inflation
may be experienced by the Company in future periods. Management believes,
however, that such effects have not been material to the Company during the past
three years in the United States or in foreign non-hyperinflationary countries.
The Company operates in certain countries around the world, such as Argentina,
Venezuela and Zimbabwe, that have experienced hyperinflation. In
hyperinflationary foreign countries, the Company attempts to mitigate the
effects of inflation by increasing prices in line with inflation, where
possible, and efficiently managing its working capital levels.

The impact of inflation on both the Company's financial position and
results of operations is not expected to adversely affect Fiscal 2006 results.
The Company's financial position continues to remain strong, enabling it to meet
cash requirements for operations, including anticipated additional pension plan
contributions, capital expansion programs and dividends to shareholders.

STOCK MARKET INFORMATION

H. J. Heinz Company common stock is traded principally on The New York
Stock Exchange and the Pacific Exchange, under the symbol HNZ. The number of
shareholders of record of the Company's common stock as of May 31, 2005
approximated 45,200. The closing price of the common stock on The New York Stock
Exchange composite listing on April 27, 2005 was $36.87.

27

Stock price information for common stock by quarter follows:

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 22 through 23.

28

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

TABLE OF CONTENTS

Report of Management on Internal Control over Financial
Reporting................................................. 30
Report of Independent Registered Public Accounting Firm..... 31
Consolidated Statements of Income........................... 33
Consolidated Balance Sheets................................. 34
Consolidated Statements of Shareholders' Equity............. 36
Consolidated Statements of Cash Flows....................... 38
Notes to Consolidated Financial Statements.................. 39

29

REPORT OF MANAGEMENT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Management is responsible for establishing and maintaining adequate
internal control over financial reporting for the Company. Internal control over
financial reporting refers to the process designed by, or under the supervision
of, our Chief Executive Officer and Chief Financial Officer, and effected by our
Board of Directors, management and other personnel, to provide reasonable
assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with generally
accepted accounting principles, and includes those policies and procedures that:

(1) Pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of
the Company;

(2) Provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that receipts and expenditures of
the Company are being made only in accordance with authorizations of management
and directors of the Company; and

(3) Provide reasonable assurance regarding prevention or timely detection
of unauthorized acquisition, use or disposition of the Company's assets that
could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may deteriorate.

Management has used the framework set forth in the report entitled
"Internal Control--Integrated Framework" published by the Committee of
Sponsoring Organizations of the Treadway Commission to evaluate the
effectiveness of the Company's internal control over financial reporting.
Management has concluded that the Company's internal control over financial
reporting was effective as of the end of the most recent fiscal year. Our
management's assessment of the effectiveness of the Company's internal control
over financial reporting as of April 27, 2005 has been audited by
PricewaterhouseCoopers LLP, an independent registered public accounting firm, as
stated in their report which appears herein.

/s/ William R. Johnson
Chairman, President and
Chief Executive Officer

/s/ Arthur B. Winkleblack
Executive Vice President and
Chief Financial Officer

June 16, 2005

30

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

We have completed an integrated audit of H. J. Heinz Company's fiscal year 2005
consolidated financial statements and of its internal control over financial
reporting as of April 27, 2005 and audits of its fiscal year 2004 and fiscal
year 2003 consolidated financial statements in accordance with the standards of
the Public Company Accounting Oversight Board (United States). Our opinions,
based on our audits, are presented below.

Consolidated financial statements and financial statement schedule

In our opinion, the consolidated financial statements listed in the index
appearing under Item 15(a)(1) present fairly, in all material respects, the
financial position of H. J. Heinz Company and its subsidiaries at April 27, 2005
and April 28, 2004, and the results of their operations and their cash flows for
each of the three years in the period ended April 27, 2005 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 financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
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 of financial statements
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.

Internal control over financial reporting

Also, in our opinion, management's assessment, included in Report of Management
on Internal Control Over Financial Reporting appearing under Item 8, that the
Company maintained effective internal control over financial reporting as of
April 27, 2005 based on criteria established in Internal Control - Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO), is fairly stated, in all material respects, based on those
criteria. Furthermore, in our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as of April 27,
2005, based on criteria established in Internal Control - Integrated Framework
issued by the COSO. The Company's management is responsible for maintaining
effective internal control over financial reporting and for its assessment of
the effectiveness of internal control over financial reporting. Our
responsibility is to express opinions on management's assessment and on the
effectiveness of the Company's internal control over financial reporting based
on our audit. We conducted our audit of internal control over financial
reporting 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 effective
internal control over financial reporting was maintained in all material
respects. An audit of internal control over financial reporting includes
obtaining an understanding of internal control over financial reporting,
evaluating management's assessment, testing and evaluating the design and
operating effectiveness of internal control, and performing such other
procedures as we consider necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinions.

31

A company's internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company's internal control over
financial reporting includes those policies and procedures that (i) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (ii)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (iii) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use, or disposition of the
company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.

/s/ PRICEWATERHOUSECOOPERS LLP

PricewaterhouseCoopers LLP
Pittsburgh, Pennsylvania
June 16, 2005

32

H. J. HEINZ COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME