<PAGE>
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 May 1, 1996
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:
<TABLE>
<CAPTION>
Name of each exchange
Title of each class on which registered
------------------- ---------------------
<S> <C>
Common Stock, par value $.25 per share New York Stock Exchange;
Pacific Stock Exchange
Third Cumulative Preferred Stock, New York Stock Exchange
$1.70 First Series, par value
$10 per share
</TABLE>
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. [ ]
As of June 30, 1996 the aggregate market value of the Registrant's voting
stock held by non-affiliates of the Registrant was approximately
$10,661,067,896.
The number of shares of the Registrant's Common Stock, par value $.25 per
share, outstanding as of June 30, 1996, was 369,813,162 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Registrant's Annual Report to Shareholders for the fiscal year
ended May 1, 1996, are incorporated into Part I, Items 1 and 3; Part II, Items
5, 7 and 8; and Part IV, Item 14.
Portions of Registrant's Proxy Statement for the 1996 Annual Meeting of
Shareholders are incorporated into Part III, Items 10, 11, 12 and 13.
<PAGE>
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 at Sharpsburg,
Pennsylvania by Henry J. Heinz. H. J. Heinz Company and its consolidated
subsidiaries (collectively, the "Company" or the "Registrant" unless the
context indicates otherwise) manufacture and market an extensive line of
processed food products throughout the world. The Company's products include
ketchup and sauces/condiments, pet food, tuna and other seafood products, baby
food, frozen potato products, soup (canned and frozen), lower-calorie products
(frozen entrees, frozen desserts, frozen breakfasts, dairy and other
products), beans, full calorie frozen dinners and entrees, pasta, coated
products, bakery products, chicken, vegetables (frozen and canned), frozen
pizza and pizza components, ice cream and ice cream novelties, edible oils,
margarine/shortening, vinegar, pickles, juices and other processed food
products. The Company operates principally in one segment of business--
processed food products--which represents more than 90% of consolidated sales.
The Company also operates and franchises weight control classes and operates
other related programs and activities. The Company intends to continue to
engage principally in the business of manufacturing and marketing processed
food products and the ingredients for food products.
The Company's products are manufactured and packaged to provide safe,
stable, wholesome foods which are used directly by consumers and foodservice
and institutional customers. Many products are prepared from recipes developed
in the Company's research laboratories and experimental kitchens. Ingredients
are carefully selected, washed, trimmed, inspected and passed on to modern
factory kitchens where they are processed, after which the finished product is
filled automatically into containers of glass, metal, plastic, paper or
fiberboard which are then closed, processed, labeled and cased for market.
Finished products are processed by sterilization, homogenization, chilling,
freezing, pickling, drying, freeze drying, baking or extruding. Certain
finished products and seasonal raw materials are aseptically packed into
sterile containers after in-line sterilization.
The Company has three classes of similar products, each of which has
accounted for 10% or more of consolidated sales in one or more of the prior
three fiscal years listed below. The following table shows sales, as a
percentage of consolidated sales, for each of these classes of similar
products for each of the last three fiscal years.
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Ketchup, sauces and other condiments....................... 19% 21% 19%
Pet food................................................... 12 9 9
Tuna and other seafood products............................ 9 9 10
All other classes of products, none of which accounts
for 10% or more of consolidated sales..................... 60 61 62
--- --- ---
100% 100% 100%
=== === ===
</TABLE>
The Company manufactures its products from a wide variety of raw foods. Pre-
season contracts are made with farmers for a substantial portion of raw
materials such as tomatoes, cucumbers, potatoes, onions and some other fruits
and vegetables. Dairy products, meat, sugar, spices, flour and other fruits
and vegetables are purchased on the open market.
Tuna is obtained through direct negotiations with tuna vessel owners,
negotiated contracts directly with the owners or through the owners'
cooperatives and by bid-and-ask transactions. In some instances, in order to
insure the continued availability of adequate supplies of tuna, the Company
assists, directly or indirectly, in financing the acquisition and operation of
fishing vessels. The provision of such assistance is not expected to affect
materially the operations of the Company. The Company also engages in the tuna
fishing business through wholly and partially owned subsidiaries.
The Marine Mammal Protection Act of 1972, as amended (the "Act"), and
regulations thereunder (the "Regulations") regulate the incidental taking of
dolphin in the course of fishing for yellowfin tuna in the eastern tropical
Pacific Ocean, where a portion of the Company's light-meat tuna is caught. In
1990, the Company voluntarily adopted a worldwide policy of refusal to
purchase tuna caught in the eastern tropical Pacific Ocean through the
intentional encirclement of dolphin by purse seine nets and reaffirmed its
policy of not purchasing tuna caught anywhere using gill nets or drift nets.
Also in 1990, the Dolphin Protection Consumer Information Act (the "Dolphin
Information Act") was enacted which regulates the labeling of tuna products as
"dolphin
2
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safe" and bans the importation of tuna caught using high seas drift nets.
"Dolphin Safe" labels appear on the Company's StarKist tuna products in
grocery stores throughout the United States. The Act was amended in 1992 to
further regulate tuna fishing methods which involve marine mammals. Compliance
with the Act, the Regulations, the Dolphin Information Act, the Company's
voluntary policy, and the 1992 amendments has not had, and is not expected to
have, a material adverse effect on the Company's operations.
In recent years, the supply of raw tuna has been variable causing a
fluctuation in raw fish prices; however, such variation in supply has not
affected materially, nor is it expected to affect materially, the Company's
operations.
The 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.
The Company's products are widely distributed around the world. Many of the
Company's products are marketed under the "Heinz" trademark, principally in
the United States, Canada, the United Kingdom, other western European
countries, Australia, Venezuela, Japan, the People's Republic of China, the
Republic of Korea and Thailand. Other important trademarks include "Star-Kist"
for tuna products, "Ore-Ida" for frozen potato products, "Bagel Bites" for
pizza snack products, "Moore's" for coated vegetables, "Rosetto" and "Domani"
for frozen pasta products, "Earth's Best" for baby food and "Dyna Bites" and
"Cheese Bites" for appetizer products, all of which are marketed in the United
States. "9 Lives" is used for cat foods, "Kibbles N' Bits", "Ken-L-Ration",
"Reward" and "IVD" for dog food, "Jerky Treats", "Meaty Bones", "Snausages"
and "Pup-Peroni" for dog snacks, "Nature's Recipe" for dog and cat foods, all
of which are marketed in the United States and Canada. "Amore" is used for cat
foods, "Kozy Kitten" for canned cat foods, "Cycle", "Gravy Train", "Skippy
Premium", "Recipe" and "Vets" for dog food, "Pounce" for cat treats, all of
which are marketed in the United States. "Chef Francisco" is used for frozen
soups and "Omstead" is used for frozen vegetables, frozen coated products and
frozen fish products, both of which are marketed in the United States and
Canada. "Pablum" is used for baby food products marketed in Canada. "Plasmon",
"Nipiol" and "Dieterba" are used for baby food products, "Misura" for dietetic
products for adults, "Ortobuono" for pickled vegetables and fruit in syrup,
"Mare D'Oro" for seafood and "Mareblu" for tuna, "Mr. Foody" for table and
kitchen sauces, "Bi-Aglut", "Aproten", "Polial" and "Dialibra" for
nutraceutical products, all of which are mainly marketed in Italy. "Petit
Navire" is used for tuna and mackerel products, "Marie Elisabeth" for sardines
and tuna and "Orlando" and "Guloso" for tomato products, all of which are
marketed in various European countries. "Wattie's" is used for various grocery
products and frozen foods, "Tip Top" for ice cream and frozen desserts,
"Tegel" for poultry products, "Chef" and "Champ" for cat and dog foods and
"Craig's" for jams and marmalades, all of which are marketed in New Zealand,
Australia and the Asia/Pacific region. "Farley's" and "Farex" are used for
baby food products marketed in Europe, Canada, India, Australia and New
Zealand. "Glucon D" and "Complan" are used for nutritional drink mixes
marketed in India and in the case of "Complan" also Latin America and New
Zealand. "Ganave" is used for pet food in Argentina. "N/R Original Recipe" is
used for dog and cat foods marketed in various European countries. "Weight
Watchers" is used in numerous countries in conjunction with owned and
franchised weight control classes, programs, related activities and certain
food products. "Budget Gourmet" is used on frozen entrees and dinners. The
Company also markets certain products under other trademarks and brand names
and under private labels.
Although crops constituting some of the Company's raw food ingredients are
harvested on a seasonal basis, most of the Company's products are produced
throughout the year. Seasonal factors inherent in the business have always
influenced the quarterly sales and net income of the Company. Consequently,
comparisons between quarters have always been more meaningful when made
between the same quarters of different years.
The products of the Company are sold under highly competitive conditions,
with many large and small competitors. The Company regards its principal
competition to be other manufacturers of processed foods, including branded,
retail products, foodservice products and private label products, that compete
with the Company for consumer preference, distribution, shelf space and
merchandising support. Product quality and consumer value are important areas
of competition. The Company's Weight Watchers International, Inc. subsidiary
also competes with a wide variety of weight control programs.
3
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The Company's products are sold through its own sales force and through
independent brokers and agents to chain, wholesale, cooperative and
independent grocery accounts, to pharmacies, to foodservice distributors and
to institutions, including hotels, restaurants and certain government
agencies. The Company is not dependent on any single customer or a few
customers for a material part of its sales.
Compliance with the provisions of national, state and local environmental
laws and regulations has not had a material effect upon the capital
expenditures, earnings or competitive position of the Company. The Company's
estimated capital expenditures for environmental control facilities for the
remainder of fiscal year 1997 and the succeeding fiscal year are not material
and will not materially affect either the earnings or competitive position of
the Company.
The Company's factories are subject to inspections by various governmental
agencies, and its products must comply with the applicable laws, including
food and drug laws, of the jurisdictions in which they are manufactured and
marketed.
The Company employed, on a full-time basis as of May 1, 1996, approximately
43,300 persons around the world.
Financial segment information by major geographic area for the most recent
three fiscal years is set forth on page 41 of the Company's Annual Report to
Shareholders for the fiscal year ended May 1, 1996. Such information is
incorporated herein by reference.
Income from international operations is subject to fluctuation in currency
values, export and import restrictions, foreign ownership restrictions,
economic controls and other factors. From time to time exchange restrictions
imposed by various countries have restricted the transfer of funds between
countries and between the Company and its subsidiaries. To date, such exchange
restrictions have not had a material adverse effect on the Company's
international operations.
FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 (the "Act") provides a
"safe harbor" for forward-looking statements to encourage companies to provide
prospective information about their companies, so long as those statements are
identified as forward-looking and are accompanied by meaningful cautionary
statements identifying important factors (the "Factors") that could cause
actual results to differ materially from those discussed in the statement. The
Company desires to take advantage of the "safe harbor" provisions of the Act
with regard to oral and written forward-looking statements made from time to
time including but not limited to the forward-looking statements contained in
the Chairman's Letter to Shareholders (pages 3 to 5 of the Company's Annual
Report to Shareholders for the fiscal year ended May 1, 1996), Management's
Discussion and Analysis (pages 34 to 41 of the Company's Annual Report to
Shareholders for the fiscal year ended May 1, 1996) and statements set forth
in this Annual Report on Form 10-K and other filings with the Securities and
Exchange Commission. The forward-looking statements are and will be based on
management's then current views and assumptions regarding future events and
financial performance. The Factors identified by the Company include, among
other things, the following: general economic and business conditions in the
domestic and global markets; actions of competitors, including competitive
pricing; changes in consumer preferences and spending patterns; changes in
social and demographic trends; changes in laws and regulations, including
changes in taxation and accounting standards; foreign currency rate
fluctuations; interest rate fluctuations; the effects of changing prices for
the raw materials used by the Company and its subsidiaries; and the
effectiveness of the Company's marketing, advertising and promotional
programs.
ITEM 2. PROPERTIES.
The Company has 42 food processing plants in the United States and its
possessions, of which 36 are owned and six are leased, as well as 62 food
processing plants in foreign countries, of which 56 are owned and six are
leased, including thirteen in New Zealand, six in Canada, six in the United
Kingdom, six in Italy, four in Australia, three in Spain, two in Greece, two
in Portugal, two in Zimbabwe, and one in each of Argentina, Botswana, the
Czech Republic, Ecuador, France, Ghana, Hungary, India, Ireland, Japan,
Netherlands, People's Republic of China, Republic of Korea, Russia,
Seychelles, South Africa, Thailand and Venezuela. The Company also leases two
can-making factories in the United States and its possessions. The Company and
certain of its subsidiaries also own or lease office space, warehouses and
research and other facilities. 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.
4
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ITEM 3. LEGAL PROCEEDINGS.
With respect to the antitrust litigation against the Company and its two
principal competitors in the United States baby food industry which was
previously reported in the Company's Annual Report on Form 10-K for the fiscal
year ended May 3, 1995, see Note 13 to the Consolidated Financial Statements
on page 61 of the Company's Annual Report to Shareholders for the fiscal year
ended May 1, 1996, which is incorporated herein by reference. On April 15,
1996, the defendants filed a motion for summary judgment to which the
plaintiffs filed a response on May 20, 1996. The Company continues to believe
that all of the suits and claims are without merit and is defending itself
vigorously against them.
With respect to the lawsuit in the U.S. District Court for the District of
Puerto Rico which was previously reported in the Company's Annual Report on
Form 10-K for the fiscal year ended May 3, 1995, the District Court approved a
consent decree filed in the matter and dismissed the lawsuit on May 22, 1996.
Related appeals to the Puerto Rico Supreme Court by the plaintiff have also
been dismissed. The Puerto Rico Environmental Quality Board ("EQB") and the
U.S. Environmental Protection Agency have approved the consent decree which
required Mayaguez Water Treatment Company, Inc., an indirectly 70% owned
subsidiary of the Company, to pay $500,000 to the EQB and $500,000 to fund
research relating to the ecology of the Bay of Mayaguez.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company has not submitted any matters to a vote of security holders
since the last annual meeting of shareholders on September 12, 1995.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following is a list of the names and ages of all of the executive
officers of the Company indicating all positions and offices with the Company
held by each such person and each such person's principal occupations or
employment during the past five years. All the executive officers have been
elected to serve until the next annual election of officers or until their
successors are elected, or until their earlier resignation or removal. The
annual election of officers is scheduled to occur on September 10, 1996.
<TABLE>
<CAPTION>
Positions and Offices Held with the Company and
Age (as of Principal Occupations or
Name September 10, 1996) Employment During Past Five Years
---- ------------------- ---------------------------------
<C> <C> <S>
Anthony J. F. O'Reilly 60 Chairman of the Board since March 11, 1987, Chief
Executive Officer since July 1, 1979 and President
from July 1, 1979 to June 12, 1996.
Joseph J. Bogdanovich 84 Vice Chairman of the Board since September 7, 1988;
also in charge of Heinz Japan Ltd. since June 20,
1973 and Chairman of the Board of Star-Kist Foods,
Inc.
William R. Johnson 47 President and Chief Operating Officer since June
12, 1996; Senior Vice President in charge of Star-
Kist Foods, Inc. and Heinz operations in the Asia
Pacific area from September 8, 1993 to June 12,
1996; Chief Executive Officer of Star-Kist Foods,
Inc. since May 1, 1992 and President and Chief
Executive Officer of Heinz Pet Products Company
from November 1, 1988 to June 12, 1996.
Luigi Ribolla 59 Executive Vice President and President-Heinz Europe
since June 12, 1996 and in charge of all Heinz
affiliates in Europe, Cairo Foods Industries SAE in
Egypt and Heinz development activities in Russia,
Eastern Europe, the Middle East and North Africa
since August 1, 1992; Senior Vice President from
August 1, 1992 to June 12, 1996; Director of Heinz
Mediterranean Area from 1988 to July 31, 1992.
</TABLE>
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<TABLE>
<CAPTION>
Positions and Offices Held with the Company and
Age (as of Principal Occupations or
Name September 10, 1996) Employment During Past Five Years
---- ------------------- ---------------------------------
<C> <C> <S>
William C. Springer 56 Executive Vice President-The Americas in charge of
Heinz North America, Heinz Service Company, Heinz
operations in Latin America since September 8, 1993
and in charge of Weight Watchers International,
Inc., Weight Watchers Gourmet Food Company, Heinz
Bakery Products Division and Ore-Ida Foods, Inc.
since June 12, 1996; President of Heinz North
America since June 1, 1992 and President and Chief
Executive Officer of Heinz U.S.A. Division since
May 1, 1989; Senior Vice President from September
8, 1993 to June 12, 1996.
David R. Williams 53 Executive Vice President-Finance and Chief
Financial Officer since June 12, 1996 and in charge
of all Heinz affiliates and development activities
in India, Pakistan and southern Africa since
October 12, 1994; Senior Vice President-Finance and
Chief Financial Officer from August 1, 1992 to June
12, 1996; Vice President-Finance and Chief
Financial Officer from February 1, 1992 to July 31,
1992; Vice President and Corporate Controller from
August 1, 1988 until January 31, 1992.
Lawrence J. McCabe 61 Senior Vice President-General Counsel since June
12, 1991; Vice President-General Counsel from
October 1, 1990 to June 11, 1991; Vice President-
Associate General Counsel from July 1, 1982 through
September 30, 1990.
David W. Sculley* 50 Senior Vice President since June 1, 1989 and in
charge of Weight Watchers International, Inc. from
June 1, 1989 to June 12, 1996, Weight Watchers
Gourmet Food Company from July 1, 1991 to June 12,
1996, and Heinz Bakery Products Division and Ore-
Ida Foods, Inc. from January 1, 1992 to June 12,
1996; from June 1, 1989 to December 31, 1991, in
charge of H. J. Heinz Company of Canada Ltd.; also
until January 31, 1992, in charge of Heinz
companies in Africa, Australia, the People's
Republic of China, the Republic of Korea and
Thailand.
</TABLE>
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*The Company announced on June 5, 1996 that Mr. Sculley will be leaving the
Company on September 1, 1996 to launch a private investment company, The
Blackburn Group, with his two brothers and several associates.
6
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Information relating to the Company's common stock is set forth beginning on
page 40 under the caption "Stock Market Information" and on page 60 in Note
12, "Quarterly Results (Unaudited)," of the Company's Annual Report to
Shareholders for the fiscal year ended May 1, 1996. Such information is
incorporated herein by reference.
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 1992 through
1996. All amounts are in thousands except per share data. Prior years per
share amounts have been adjusted to reflect the three-for-two stock split,
which was effective October 3, 1995.
<TABLE>
<CAPTION>
Fiscal year ended
---------------------------------------------------------
May 1, May 3, April 27, April 28, April 29,
1996 1995 1994 1993 1992
(52 Weeks) (53 Weeks) (52 Weeks) (52 Weeks) (52 Weeks)
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Sales................... $9,112,265 $8,086,794 $7,046,738 $7,103,374 $6,581,867
Interest expense........ 277,411 210,585 149,243 146,491 134,948
Income before cumulative
effect of
accounting change...... 659,319 591,025 602,944 529,943 638,295
Net income.............. 659,319 591,025 602,944 396,313 638,295
Income before cumulative
effect of
accounting change per
common share........... 1.75 1.59 1.57 1.36 1.60
Net income per common
share................... 1.75 1.59 1.57 1.02 1.60
Short-term debt and
current portion
of long-term debt...... 1,082,169 1,074,291 439,701 1,604,355 1,724,095
Long-term debt,
exclusive of
current portion........ 2,281,659 2,326,785 1,727,002 1,009,381 178,388
Total assets............ 8,623,691 8,247,188 6,381,146 6,821,321 5,931,901
Cash dividends per
common share............ 1.03 1/2 .94 .86 .78 .70
</TABLE>
Results recorded in 1996 include gains related to the sale of the Weight
Watchers Magazine ($0.02 per share) and the sale of two regional dry pet food
product lines ($0.02 per share) and a charge for restructuring costs at
certain overseas affiliates ($0.01 per share). See Note 12 to the Consolidated
Financial Statements on page 60 of the Company's Annual Report to Shareholders
for the fiscal year ended May 1, 1996.
During 1995, the Company invested approximately $1.2 billion in
acquisitions, the most significant of which was the North American pet food
businesses of The Quaker Oats Company. See Note 2 to the Consolidated
Financial Statements, beginning on page 48 of the Company's Annual Report to
Shareholders for the fiscal year ended May 1, 1996.
Results recorded in 1994 include gains from the sale of the confectionery
business of Heinz Italy and the sale of Heinz U.S.A.'s Near East specialty
rice business. See Note 3 to the Consolidated Financial Statements on page 50
of the Company's Annual Report to Shareholders for the fiscal year ended May
1, 1996.
During 1993, the Company adopted the provisions of FAS No. 106 and elected
immediate recognition of the accumulated postretirement benefit obligation for
active and retired employees, resulting in an after-tax cumulative charge of
$133.6 million (net of income tax benefit of $85.4 million), or $0.34 per
share. In addition, the adoption of FAS No. 106 increased the company's pretax
postretirement benefit expense by $16.3 million ($0.03 per share) in 1993.
In 1993, restructuring charges of $192.3 million on a pretax basis ($0.30
per share) were reflected in operating income. The major components of the
restructuring plan related to employee severance and relocation costs ($99.0
million) and facilities consolidation and closure costs ($73.0 million).
In 1992, restructuring charges of $88.3 million on a pretax basis ($0.13 per
share) were reflected in operating income to provide for the consolidation of
functions, staff reductions, organizational reform and plant modernizations
and closures.
Results recorded in 1992 also include a pretax gain of $221.5 million on the
sale of The Hubinger Company of Keokuk, Iowa to Roquette Freres, a major
worldwide producer of corn starches. Hubinger is a producer of corn
derivatives, including corn syrup, starch and ethanol.
7
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
This information is set forth in the Management's Discussion and Analysis
section on pages 34 through 41 of the Company's Annual Report to Shareholders
for the fiscal year ended May 1, 1996. Such information is incorporated herein
by reference.
Subsequent to year-end, the Company entered into a letter of intent to
acquire substantially all of the pet food business of Martin Feed Mills
Limited of Elmira, Ontario. Martin's cat and dog food lines, sold under the
brand Techni-Cal, are produced and marketed throughout Canada and exported to
Japan, the United Kingdom, France, Holland, Spain, the Czech Republic and
other European countries.
In addition, Questor Partners Fund, L.P., an unrelated national investment
group, has entered into a letter of intent to acquire the brand name and
ongoing canned seafood business of Bumble Bee Seafoods, Inc. of San Diego,
California. The letter of intent also provides for H.J. Heinz Company, through
its affiliate, Star-Kist Foods, Inc., to purchase the Bumble Bee tuna
production facilities in Mayaguez, Puerto Rico; Santa Fe Springs, California
and Manta, Ecuador. Star-Kist plans to co-pack tuna under the Bumble Bee label
for the new Questor entity.
The above transactions, if consummated, combined with the acquisition of
Southern Country Foods Limited will not have a material impact on the
company's results of operations or financial position in fiscal 1997.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Consolidated Balance Sheets of the Company and its subsidiaries as of
May 1, 1996 and May 3, 1995 and the related Consolidated Statements of Income,
Retained Earnings and Cash Flows for the fiscal years ended May 1, 1996, May
3, 1995 and April 27, 1994, together with the related Notes to Consolidated
Financial Statements, included in the Company's Annual Report to Shareholders
for the fiscal year ended May 1, 1996, are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
There is nothing to be reported under this item.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information relating to the Directors of the Company is set forth under the
captions "Information Regarding Nominees for Election of Directors" and
"Additional Information--Section 16 Beneficial Ownership Reporting Compliance"
in the Company's definitive Proxy Statement in connection with the Annual
Meeting of Shareholders to be held September 10, 1996. Such information is
incorporated herein by reference. Information relating to the executive
officers of the Company is set forth under the caption "Executive Officers of
the Registrant" in Part I above.
ITEM 11. EXECUTIVE COMPENSATION.
Information relating to executive compensation is set forth under the
caption "Executive Compensation" in the Company's definitive Proxy Statement
in connection with its Annual Meeting of Shareholders to be held September 10,
1996. Such information is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information relating to the ownership of equity securities of the Company by
certain beneficial owners and management is set forth under the captions
"Security Ownership of Certain Beneficial Owners" and "Security Ownership of
Management" in the Company's definitive Proxy Statement in connection with its
Annual Meeting of Shareholders to be held September 10, 1996. Such information
is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information relating to certain relationships with a beneficial shareholder
and certain related transactions is set forth under the caption "Certain
Business Relationships" and "Additional Information--Transactions with
Beneficial Shareholders" in the Company's definitive Proxy Statement in
connection with its Annual Meeting of Shareholders to be held September 10,
1996. Such information is incorporated herein by reference.
8
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a)(1) The following financial statements and report included in the Company's
Annual Report to Shareholders for the fiscal year ended May 1, 1996 are
incorporated herein by reference:
Consolidated Balance Sheets as of May 1, 1996 and May 3, 1995
Consolidated Statements of Income for the fiscal years ended May 1,
1996, May 3, 1995 and April 27, 1994
Consolidated Statements of Retained Earnings for the fiscal years
ended May 1, 1996, May 3, 1995 and April 27, 1994
Consolidated Statements of Cash Flows for the fiscal years ended May
1, 1996, May 3, 1995 and April 27, 1994
Notes to Consolidated Financial Statements
Report of Independent Accountants of Coopers & Lybrand L.L.P. dated
June 18, 1996, on the Company's consolidated financial statements
for the fiscal years ended May 1, 1996, May 3, 1995 and April 27,
1994
(2) The following report and schedule is filed herewith as a part hereof:
Report of Independent Accountants of Coopers & Lybrand L.L.P. dated
June 18, 1996, on the Company's consolidated financial statement
schedule filed as a part hereof for the fiscal years ended May 1,
1996, May 3, 1995 and April 27, 1994.
Schedule II (Valuation and Qualifying Accounts and Reserves) for the
three fiscal years ended May 1, 1996, May 3, 1995 and April 27,
1994.
All other schedules are omitted because they are not applicable or the
required information is included herein or is shown in the consolidated
financial statements or notes thereto incorporated herein by reference.
(3) Exhibits required to be filed by Item 601 of Regulation S-K are listed
below and are filed as a part hereof. Documents not designated as being
incorporated herein by reference are filed herewith. The paragraph
numbers correspond to the exhibit numbers designated in Item 601 of
Regulation S-K.
3(i) The Company's Articles of Amendment dated July 13, 1994, amending
and restating the Company's amended and restated Articles of
Incorporation in their entirety are incorporated herein by reference
to Exhibit 3(i) to the Company's Annual Report on Form 10-K for the
fiscal year ended April 27, 1994.
3(ii) The Company's By-Laws, as amended effective October 12, 1994 are
incorporated herein by reference to Exhibit 3(ii) to the Company's
Annual Report on Form 10-K for the fiscal year ended May 3, 1995.
4. Except as set forth below, there are no instruments with respect to
long-term debt of the Company that involve indebtedness or
securities authorized thereunder exceeding 10 percent of the total
assets of the Company and its subsidiaries on a consolidated basis.
The Company agrees to file a copy of any instrument or agreement
defining the rights of holders of long-term debt of the Company upon
request of the Securities and Exchange Commission.
(a) Form of Indenture between the Company and The First National
Bank of Chicago dated as of July 15, 1992, is incorporated
herein by reference to Exhibits 4(a) and 4(c) to the Company's
Registration Statement on Form S-3 (Reg. No. 33-46680) and the
supplements to such Indenture are incorporated herein by
reference to the Company's Form 8-Ks dated September 21, 1992,
October 29, 1992 and January 27, 1993 relating to the Company's
$250,000,000 5 1/2% Notes due 1997, $300,000,000 6 3/4% Notes
due 1999 and $200,000,000 6 7/8% Notes due 2003, respectively.
10(a) Permit No. 408 (lease) granted by the City of Los Angeles to Star-
Kist Foods, Inc. dated September 6, 1979 for premises located at
Terminal Island, California is incorporated herein by reference to
Exhibit 10(e) to the Company's Annual Report on Form 10-K for the
fiscal year ended April 29, 1981.
9
<PAGE>
(b) Lease of Land in American Samoa, dated as of September 17, 1983, by
and between the American Samoa Government and Star-Kist Samoa, Inc.
is incorporated herein by reference to Exhibit 10(m) to the
Company's Annual Report on Form 10-K for the fiscal year ended May
2, 1984.
(c) Management contracts and compensatory plans:
(i) 1986 Deferred Compensation Program for H. J. Heinz Company
and affiliated companies, as amended and restated in its
entirety effective December 6, 1995
(ii) H. J. Heinz Company's 1984 Stock Option Plan, as amended, is
incorporated herein by reference to Exhibit 10(n) to the
Company's Annual Report on Form 10-K for the fiscal year
ended May 2, 1990
(iii) H. J. Heinz Company's 1987 Stock Option Plan, as amended, is
incorporated herein by reference to Exhibit 10(o) to the
Company's Annual Report on Form 10-K for the fiscal year
ended May 2, 1990
(iv) H. J. Heinz Company's 1990 Stock Option Plan is incorporated
herein by reference to Appendix A to the Company's Proxy
Statement dated August 3, 1990
(v) H. J. Heinz Company's 1994 Stock Option Plan is incorporated
herein by reference to Appendix A to the Company's Proxy
Statement dated August 5, 1994
(vi) H. J. Heinz Company Supplemental Executive Retirement Plan,
as amended, is incorporated herein by reference to Exhibit
10(c)(ix) to the Company's Annual Report on Form 10-K for the
fiscal year ended April 28, 1993
(vii) H. J. Heinz Company Executive Deferred Compensation Plan is
incorporated herein by reference to Exhibit 10(c)(x) to the
Company's Annual Report on Form 10-K for the fiscal year
ended April 27, 1994
(viii) H. J. Heinz Company Incentive Compensation Plan is
incorporated herein by reference to Appendix B to the
Company's Proxy Statement dated August 5, 1994
(ix) H. J. Heinz Company Stock Compensation Plan for Non-Employee
Directors is incorporated herein by reference to Appendix A
to the Company's Proxy Statement dated August 3, 1995
11. Computation of net income per share.
13. Pages 34 through 62 of the H. J. Heinz Company Annual Report to
Shareholders for the fiscal year ended May 1, 1996, portions of
which are incorporated herein by reference. Those portions of the
Annual Report to Shareholders that are not incorporated herein by
reference shall not be deemed to be filed as a part of this Report.
21. Subsidiaries of the Registrant.
23. The following Exhibit is filed by incorporation by reference to Item
14(a)(2) of this Report:
(a) Consent of Coopers & Lybrand L.L.P.
24. Powers-of-attorney of the Company's directors.
27. Financial Data Schedule.
Copies of the exhibits listed above will be furnished upon request to
holders or beneficial holders of any class of the Company's stock,
subject to payment in advance of the cost of reproducing the exhibits
requested.
(b) There have been no reports filed on Form 8-K during the last fiscal quarter
of the period covered by this Report.
10
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized, on July 26, 1996.
H. J. HEINZ COMPANY
(Registrant)
/s/ David R. Williams
By......................................
DAVID R. WILLIAMS
Executive Vice President-Finance and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated, on July 26, 1996.
Signature Capacity
/s/ Anthony J. F. O'Reilly
............................. Chairman of the Board and
ANTHONY J. F. O'REILLY Chief Executive Officer
(Principal Executive
Officer)
/s/ David R. Williams
............................. Executive Vice President-Finance and
DAVID R. WILLIAMS Chief Financial Officer (Principal
Financial Officer)
/s/ Tracy E. Quinn Corporate Controller
............................. (Principal Accounting
TRACY E. QUINN Officer)
Anthony J. F. O'Reilly Director
Joseph J. Bogdanovich Director
Nicholas F. Brady Director
Richard M. Cyert Director
Thomas S. Foley Director
Edith E. Holiday Director
Samuel C. Johnson Director
William R. Johnson Director
Donald R. Keough Director
Albert Lippert Director /s/ Lawrence J. McCabe
Lawrence J. McCabe Director By...................................
Luigi Ribolla Director LAWRENCE J. MCCABE
Herman J. Schmidt Director Director and Attorney-in-Fact
David W. Sculley Director
Eleanor B. Sheldon Director
William P. Snyder III Director
William C. Springer Director
S. Donald Wiley Director
David R. Williams Director
11
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Shareholders
H. J. Heinz Company:
Our report on the consolidated financial statements of H. J. Heinz Company
and Subsidiaries has been incorporated by reference in this Annual Report on
Form 10-K from the Company's Annual Report to Shareholders for the fiscal year
ended May 1, 1996 and appears on page 62 therein. In connection with our
audits of such financial statements, we have also audited the related
financial statement schedule listed in Item 14(a) of this Annual Report on
Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
Coopers & Lybrand L.L.P.
Pittsburgh, PA
June 18, 1996
---------------
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statements
of H. J. Heinz Company on Form S-8 (Registration Nos. 2-51719, 2-45120, 33-
00390, 33-19639, 33-32563, 33-42015, 33-55777 and 33-62623) of our reports
dated June 18, 1996, on our audits of the consolidated financial statements
and financial statement schedule of H. J. Heinz Company and Subsidiaries as of
May 1, 1996 and May 3, 1995 and for the fiscal years ended May 1, 1996, May 3,
1995 and April 27, 1994, which reports are included or incorporated by
reference in this Annual Report on Form 10-K.
Coopers & Lybrand L.L.P.
Pittsburgh, PA
July 26, 1996
12
<PAGE>
SCHEDULE II
H. J. HEINZ COMPANY AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FISCAL YEARS ENDED MAY 1, 1996, MAY 3, 1995 AND APRIL 27, 1994
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
Additions
-------------------
Balance at Charged to Charged Balance at
beginning costs and to other end of
Description of period expenses accounts Deductions period
----------- ---------- ---------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Fiscal year ended May 1,
1996:
Reserves deducted in
the balance sheet
from the assets to
which they apply:
Receivables......... $ 16,309 $ 7,254 $ -- $ 6,265(1) $ 17,298
======== ======= ====== ======= ========
Investments,
advances and other
assets.............. $ 7,466 $ -- $ -- $ 1,602 $ 5,864
======== ======= ====== ======= ========
Goodwill............ $163,793 $48,583 $ -- $ 683 $211,693
======== ======= ====== ======= ========
Other intangibles... $117,430 $30,519 $ -- $ 6,063(1) $141,886
======== ======= ====== ======= ========
Deferred tax assets
(2)................. $ 49,487 $ 3,195 $ -- $17,088 $ 35,594
======== ======= ====== ======= ========
Fiscal year ended May 3,
1995:
Reserves deducted in
the balance sheet
from
the assets to which
they apply:
Receivables......... $ 15,407 $ 5,135 $ -- $ 4,233(1) $ 16,309
======== ======= ====== ======= ========
Investments,
advances and other
assets.............. $ 19,841 $ -- $ -- $12,375(3) $ 7,466
======== ======= ====== ======= ========
Goodwill............ $127,708 $33,970 $ -- $(2,115) $163,793
======== ======= ====== ======= ========
Other intangibles... $ 85,862 $31,441 $ -- $ (127) $117,430
======== ======= ====== ======= ========
Deferred tax assets
(4)................. $ 28,888 $28,178 $ -- $ 7,579 $ 49,487
======== ======= ====== ======= ========
Fiscal year ended April
27, 1994:
Reserves deducted in
the balance sheet
from the assets to
which they apply:
Receivables......... $ 16,299 $ 4,535 $ -- $ 5,427(1) $ 15,407
======== ======= ====== ======= ========
Investments,
advances and other
assets.............. $ 20,165 $ -- $ -- $ 324 $ 19,841
======== ======= ====== ======= ========
Goodwill............ $115,631 $30,275 $ -- $18,198(1) $127,708
======== ======= ====== ======= ========
Other intangibles... $ 72,673 $17,396 $ -- $ 4,207(1) $ 85,862
======== ======= ====== ======= ========
Deferred tax assets
(5)................. $ 85,071 $ 4,655 $ -- $60,838 $ 28,888
======== ======= ====== ======= ========
</TABLE>
Notes:
(1) Principally reserves on assets sold, written-off or reclassified.
(2) The net change in the valuation allowance for deferred tax assets was a
decrease of $13.9 million. The decrease was primarily due to the
utilization of loss carryforwards ($4.6 million) and recognition of the
realizability of certain other deferred tax assets in future years ($12.5
million). An increase in the valuation allowance related to the deferred
tax asset for foreign tax credit carryforwards ($1.7 million) and loss
carryforwards ($1.5 million) partially offset the decrease. See Note 4 to
the Consolidated Financial Statements on pages 51 and 52 of the Company's
Annual Report to Shareholders for the fiscal year ended May 1, 1996.
(3) Represents amounts reclassified as a result of consolidation of certain
fishing vessel operations.
(4) The net change in the valuation allowance for deferred tax assets was an
increase of $20.6 million. The increase is primarily due to increases in
the valuation allowance related to additional deferred tax assets for
foreign tax credit carryforwards ($25.3 million) and loss carryforwards
($2.9 million). This increase was partially offset by the recognition of
the realizability of certain other deferred tax assets in future years
($3.1 million) and the utilization of loss carryforwards ($4.5 million).
See Note 4 to the Consolidated Financial Statements on pages 51 and 52 of
the Company's Annual Report to Shareholders for the fiscal year ended May
1, 1996.
<PAGE>
(5) The net change in the valuation allowance for deferred tax assets was a
decrease of $56.2 million. The decrease was primarily due to the
utilization of loss carryforwards ($2.8 million) and recognition of the
realizability of certain other deferred tax assets in future years ($57.3
million). An increase in the valuation allowance related to the deferred
tax asset for loss carryforwards ($4.7 million) partially offset the
decrease. See Note 4 to the Consolidated Financial Statements on pages 51
and 52 of the Company's Annual Report to Shareholders for the fiscal year
ended May 1, 1996.
<PAGE>
EXHIBIT INDEX
Exhibits required to be filed by Item 601 of Regulation S-K are listed below
and are filed as a part hereof. Documents not designated as being incorporated
herein by reference are filed herewith. The paragraph numbers correspond to
the exhibit numbers designated in Item 601 of Regulation S-K.
EXHIBIT
3(i) The Company's Articles of Amendment dated July 13, 1994, amending and
restating the Company's amended and restated Articles of Incorporation
in their entirety are incorporated herein by reference to Exhibit 3(i)
to the Company's Annual Report on Form 10-K for the fiscal year ended
April 27, 1994.
3(ii) The Company's By-Laws, as amended effective October 12, 1994 are
incorporated herein by reference to Exhibit 3(ii) to the Company's
Annual Report on Form 10-K for the fiscal year ended May 3, 1995.
4. Except as set forth below, there are no instruments with respect to
long-term debt of the Company that involve indebtedness or securities
authorized thereunder exceeding 10 percent of the total assets of the
Company and its subsidiaries on a consolidated basis. The Company agrees
to file a copy of any instrument or agreement defining the rights of
holders of long-term debt of the Company upon request of the Securities
and Exchange Commission.
(a) Form of Indenture between the Company and The First National Bank of
Chicago dated as of July 15, 1992, is incorporated herein by
reference to Exhibits 4(a) and 4(c) to the Company's Registration
Statement on Form S-3 (Reg. No. 33-46680) and the supplements to such
Indenture are incorporated herein by reference to the Company's Form
8-Ks dated September 21, 1992, October 29, 1992 and January 27, 1993
relating to the Company's $250,000,000 5 1/2% Notes due 1997,
$300,000,000 6 3/4% Notes due 1999 and $200,000,000 6 7/8% Notes due
2003, respectively.
10(a) Permit No. 408 (lease) granted by the City of Los Angeles to Star-Kist
Foods, Inc. dated September 6, 1979 for premises located at Terminal
Island, California is incorporated herein by reference to Exhibit 10(e)
to the Company's Annual Report on Form 10-K for the fiscal year ended
April 29, 1981.
(b) Lease of Land in American Samoa, dated as of September 17, 1983, by and
between the American Samoa Government and Star-Kist Samoa, Inc. is
incorporated herein by reference to Exhibit 10(m) to the Company's Annual
Report on Form 10-K for the fiscal year ended May 2, 1984.
(c) Management contracts and compensatory plans:
(i)1986 Deferred Compensation Program for H. J. Heinz Company and
affiliated companies, as amended and restated in its entirety
effective December 6, 1995
(ii)H. J. Heinz Company's 1984 Stock Option Plan, as amended, is
incorporated herein by reference to Exhibit 10(n) to the Company's
Annual Report on Form 10-K for the fiscal year ended May 2, 1990
(iii)H. J. Heinz Company's 1987 Stock Option Plan, as amended, is
incorporated herein by reference to Exhibit 10(o) to the Company's
Annual Report on Form 10-K for the fiscal year ended May 2, 1990
(iv)H. J. Heinz Company's 1990 Stock Option Plan is incorporated herein
by reference to Appendix A to the Company's Proxy Statement dated
August 3, 1990
(v)H. J. Heinz Company's 1994 Stock Option Plan is incorporated herein
by reference to Appendix A to the Company's Proxy Statement dated
August 5, 1994
(vi)H. J. Heinz Company Supplemental Executive Retirement Plan, as
amended, is incorporated herein by reference to Exhibit 10(c)(ix) to
the Company's Annual Report on Form 10-K for the fiscal year ended
April 28, 1993
<PAGE>
EXHIBIT
(vii)H. J. Heinz Company Executive Deferred Compensation Plan is
incorporated herein by reference to Exhibit 10(c)(x) to the
Company's Annual Report on Form 10-K for the fiscal year ended
April 27, 1994
(viii)H. J. Heinz Company Incentive Compensation Plan is incorporated
herein by reference to Appendix B to the Company's Proxy Statement
dated August 5, 1994
(ix)H. J. Heinz Company Stock Compensation Plan for Non-Employee
Directors is incorporated herein by reference to Appendix A to the
Company's Proxy Statement dated August 3, 1995
11.Computation of net income per share.
13.Pages 34 through 62 of the H. J. Heinz Company Annual Report to
Shareholders for the fiscal year ended May 1, 1996, portions of which are
incorporated herein by reference. Those portions of the Annual Report to
Shareholders that are not incorporated herein by reference shall not be
deemed to be filed as a part of this Report.
21.Subsidiaries of the Registrant.
23.The following Exhibit is filed by incorporation by reference to Item
14(a)(2) of this Report:
(a)Consent of Coopers & Lybrand L.L.P.
24.Powers-of-attorney of the Company's directors.
27.Financial Data Schedule.
<PAGE>
Exhibit 10(c)(i)
1986
DEFERRED COMPENSATION PROGRAM
FOR EXECUTIVES OF H. J. HEINZ COMPANY
AND AFFILIATED COMPANIES
(AS AMENDED JUNE 1, 1991 AND AMENDED AND RESTATED
IN ITS ENTIRETY, DECEMBER 6, 1995)
1. Purpose
The purpose of this Program is to provide Eligible Executives with an
opportunity to defer current income.
2. Definitions
2.1 "Account" shall mean a deferred compensation reserve account
established for bookkeeping purposes only in the financial accounting
records of the Corporation which reflect Awards deferred pursuant to
Section 3 plus Rollovers pursuant to Section 4 plus earnings credited
at the applicable Crediting Rate.
2.2 "Age" shall mean the Participant's attained age in years.
2.3 "Award" shall mean, for any fiscal year, the amount granted to an
Eligible Executive of the Company for that year and, in the absence of
a Deferral Election with respect to such Award, payable to him in the
succeeding fiscal year under MIP and LTIP.
2.4 "Board" shall mean the Board of Directors of the Corporation.
2.5 "Beneficiary" shall mean the person or entity designated by the
Participant or the Spouse of a Participant in a time and manner
determined by the Committee to receive Benefits under this Program.
If no Beneficiary designation by a Participant is in effect, the
Beneficiary shall be the Participant's Spouse, if any, or if none,
then the Participant's estate. If a Participant's Spouse makes no
Beneficiary designation, then the Beneficiary shall be such Spouse's
estate. A Participant or his surviving Spouse may revoke or change
their Beneficiary designation at any time in the manner determined
from time to time by the Committee.
<PAGE>
2
2.6 "Benefit" shall mean any payment made from an Account to a Participant
or his Beneficiary. Such Benefit shall be payable in United States
currency by a check or draft drawn upon an account of the Company at
any United States domestic bank. Such check or draft shall be mailed
by regular first class United States mail to the latest address
provided by the Participant or his Beneficiary no later than the date
specified for such Benefit to be paid pursuant to the terms of this
Program.
2.7 "Committee" shall mean the Management Development and Compensation
Committee of the Board and its designee or their successors.
2.8 "Company" shall mean H. J. Heinz Company or any company or corporation
affiliated with H. J. Heinz Company.
2.9 "Corporation" shall mean H. J. Heinz Company, a Pennsylvania
corporation, and any successor thereto by merger, purchase or
otherwise.
2.10 "Crediting Rate" shall mean for any Plan Year the greater of 150% of
Moody's Composite Bond Index or 15% per annum until such time as
periodic Benefits begin pursuant to Section 6, Section 7 or Section 8,
whereupon the Crediting Rate shall be 15% per annum. No crediting of
earnings at the applicable Crediting Rate will be made after the last
day of the month in which the event occurs which causes a single sum
Benefit payment to become payable pursuant to Section 7 or Section 8.
Crediting of earnings shall commence on July 1, 1987 and continue each
July 1 thereafter to a Participant's Account up to the date a Benefit
is payable from such Account. Once the first periodic Benefit payment
from an Account is made, crediting of earnings on such Account at the
applicable Crediting Rate shall be accrued annually from the date such
first periodic Benefit payment is made.
2.11 "Deferral Election" shall mean the signing of the irrevocable deferral
election form authorized by the Committee under which the Eligible
Executive elects to
<PAGE>
3
defer all or a portion of his Award pursuant to Section 3, or elects
to make a complete or partial Rollover Election pursuant to Section 4
(Rollover Election).
2.12 "Deferral Date" shall mean July 1, 1986 with respect to any Awards
deferred under a Deferral Election entered into by an Eligible
Executive for a fiscal year 1986 Award and a Rollover, and July 1,
1987 for a fiscal year 1987 Award deferred under a Deferral Election.
2.13 "Eligible Executive" shall mean an employee of the Company who is
eligible for MIP and/or LTIP as of April 30, 1986 and who has not
attained age 65 by such date, provided, however, that the Committee,
in its sole discretion, may designate any employee of the Company as
an Eligible Executive.
2.14 "MIP" and/or "LTIP" shall mean the Company's Management Incentive Plan
and the Company's Long Term Incentive Plan, respectively, existing as
of July 1, 1986 or as each may be amended from time to time
thereafter.
2.15 "Moody's Composite Bond Index" shall mean the Monthly Average of the
Composite Yield on Seasoned Corporate Bonds as published by Moody's
Investors Service, Inc. or any successor thereto for the calendar
month which ends two months prior to the beginning of any applicable
Plan Year. If such index is no longer published, the Committee, in
its sole discretion, may use any seasoned United States corporate bond
index published generally in the United States.
2.16 "Participant" shall mean an Eligible Executive who elects to defer all
or a portion of his Award pursuant to Section 3 or elects a Rollover
pursuant to Section 4.
2.17 "Plan Year" shall mean the twelve months beginning July 1 through June
30 commencing July 1, 1986 and each twelve month period thereafter so
long as the Program remains in existence.
<PAGE>
4
2.18 "Program" shall mean the 1986 Deferred Compensation Program for
Executives of H. J. Heinz Company and Affiliated Companies.
2.19 "Retirement" shall mean attainment of age 55 or completion of 30 years
of continuous service within the meaning of the applicable provisions
of the H. J. Heinz Retirement System as in effect on the date of the
Participant's Deferral Election.
2.20 "Rollover" shall mean amounts credited pursuant to Section 4 from
previously deferred cash awards together with interest accrued thereon
under MIP and/or LTIP to a Participant's Account.
2.21 "Spouse" shall mean the person who is legally married to the
Participant at the time of the Participant's death and is not then
subject to an agreement or court decree of separate maintenance or a
trust in which such person is the sole income Beneficiary.
3. Deferral of Awards
3.1 An Eligible Executive may elect, subject to section 3.3, to defer
whole dollars or a percentage of his Award as follows:
(a) up to 100% of his fiscal year 1986 Award, if any; and/or
(b) up to 100% of his fiscal year 1987 Award, if any.
3.2 Such election shall be made by executing an irrevocable Deferral
Election with the Company on or before April 30, 1986.
3.3 The minimum amount of an Award which an Eligible Executive may defer
in any year shall be $5,000. Deferral Elections of less than $5,000
shall be void and of no effect.
<PAGE>
5
4. Rollovers of MIP and/or LTIP
4.1 An Eligible Executive may make an irrevocable one-time election in
whole dollars for the Rollover of all or a portion, but not less than
$5,000, of his previously deferred cash awards plus interest accrued
thereon under MIP and/or LTIP as of June 30, 1986 including such
amounts the Eligible Executive previously elected to defer with
respect to F.Y. 1986 and/or F.Y. 1987 MIP and/or LTIP. Rollovers
shall become part of a Participant's Account and shall be subject to
the rules of the Program. A Rollover election may be made by an
Eligible Executive independent of the deferral of an Award pursuant to
Section 3.
5. Death Prior to Deferral Date
5.1 If a Participant dies prior to a Deferral Date for any Award or
Rollover, the Deferral Election or Rollover Election with respect to
such Award or Rollover shall be void and of no effect. The Company's
sole obligation in such circumstance with respect to an Award shall be
to pay such Award to the Participant's estate or personal legal
representative. Rollover amounts transferred pursuant to this Program
will be paid out in accordance with the rules of MIP and/or LTIP as if
the Rollover election had never taken place.
6. Participant's Benefit at Age 65
6.1 A Benefit shall be payable from a Participant's Account in 15 equal
annual installments beginning on the 1st day of the month next
following the day such Participant attains age 65 and on the same day
of each year thereafter until all annual installments have been paid.
Each installment shall be deducted from the Participant's Account and
shall be in an amount sufficient to exhaust the Participant's Account
together with interest compounded at 15% per annum on the declining
Account balance. The amount of each installment shall be calculated
by dividing a Participant's Account as of the date installments
commence by 6.72447561. If a Participant dies after
<PAGE>
6
attaining age 65, his Account at his date of death shall be paid in
accordance with Section 8.4.
7. Benefits at Termination of Employment
7.1 A Participant whose employment with the Company has terminated prior
to attaining age 50 or becoming eligible for Retirement, for any
reason whatsoever, except for death, shall receive his Account in a
single sum as soon as practicable following the date of his
termination of employment.
7.2 If such Participant has attained age 50 or is eligible for Retirement
at the time of his termination of employment for any reason whatsoever
except for death, Benefits shall be payable pursuant to Section 6
beginning the first day of the month next following the day such
Participant attains age 65.
7.3 Notwithstanding Section 2.10, if a Participant whose employment with
the Company has terminated pursuant to Section 7.1 in the first year
after any Deferral Date for any Award or Rollover, the Crediting Rate
applied to such Award or Rollover will be reduced to zero, and if such
Participant's termination of employment occurs for any reason, except
for death, in the second year after any Deferral Date for any Award or
Rollover, the Crediting Rate will be reduced to 5% per annum. If such
Participant's termination of employment occurs for any reason
whatsoever except for death after two years from any Deferral Date of
any Award or Rollover, the Crediting Rate shall be the same as stated
in Section 2.10.
7.4 Notwithstanding anything to the contrary contained herein:
(a) if a Participant's employment with the Company terminates because
of the sale of an affiliated corporation, division or other
portion of the business to a party that is not affiliated with
the Company, the Participant may continue to receive the benefits
of the Program that he or she would otherwise have received had
the Participant
<PAGE>
7
continued to be employed by an affiliate of the Company,
provided the Board of Directors or the Executive Committee
of the Board of Directors specifically authorizes
Participant to continue to receive the benefits of the Program
following the disposition of the affiliate, division or other
business in which such Participant was employed.
(b) if the Committee determines that a Participant's employment with
the Company has been terminated involuntarily without cause
before meeting the requirements of Section 7.2, the Committee may
specify that the Participant shall continue to receive the
benefits of the Program that he or she would otherwise have
received had the Participant continued to be employed by the
Company. Any such authorization shall be made on a case by case
basis in the sole discretion of the Committee and such
authorization in one case shall not be precedent for
authorization in any other case.
8. Death Benefits
8.1 If a Participant dies prior to age 65 and is not eligible for
Retirement, his Beneficiary shall receive a single sum as soon as
practicable following his date of death equal to the greater of:
(a) three times the sum of Awards deferred under Section 3 and any
Rollover pursuant to Section 4; or
(b) the Participant's Account at his date of death.
8.2 If a Participant dies prior to age 65 and is eligible for Retirement
and his Beneficiary is his Spouse, then a Benefit of 15 annual
payments calculated pursuant to Section 6 will be paid, commencing as
soon as practicable, to such Spouse. The Spouse's Benefit will be
based on the greater of:
<PAGE>
8
(a) three times the sum of Awards deferred under Section 3 and any
Rollover pursuant to Section 4; or
(b) the Participant's Account at his date of death.
8.3 If a Participant dies prior to age 65 and is eligible for Retirement
and his Beneficiary is not his Spouse, then a single sum Benefit will
be paid equal to the greater of:
(a) three times the sum of Awards deferred under Section 3 and any
Rollover pursuant to Section 4; or
(b) The Participant's Account at his date of death.
8.4 If a Participant dies after age 65, his Beneficiary, if such
Beneficiary is the Participant's Spouse, shall receive the remainder
of the 15 annual installments pursuant to Section 6. If the
Participant's Beneficiary is other than his Spouse, a single sum
payment equal to the Participant's Account at his date of death shall
be paid to such Beneficiary as soon as practicable.
8.5 In the event of the death of a Participant's Spouse before the 15
annual installments pursuant to Section 6 have been completed, such
Spouse's Beneficiary shall receive a single sum Benefit equal to the
Account balance at the Spouse's date of death as soon as practicable.
9. Administration
9.1 The Committee shall have discretionary power to administer and
interpret the Program (including the power to resolve ambiguities), to
establish rules to further the purposes of the Program and to take any
other action necessary for the proper operation of the Program.
9.2 The Board, in its sole discretion and upon such terms as it may
prescribe, may permit any company or
<PAGE>
9
corporation directly or indirectly controlled by the Corporation to
participate in the Program for such periods as the Committee may
determine.
9.3 The Committee shall provide adequate written notice to any Participant
or Beneficiary whose claim for benefits under this Program has been
denied setting forth specific reasons for such denial. A Participant
or Beneficiary whose claim has been denied shall be entitled to appeal
the denial of his claim by providing a written statement of his
position to the Committee not later than 60 days after receipt of the
notification of denial of the claim. The Committee shall within 60
days after receipt of such notice communicate to the claimant its
decision in writing, which decision shall be final and binding upon
all parties.
9.4 All acts and decisions of the Committee shall be final and binding
upon all Participants, Beneficiaries, heirs, estates, personal legal
representatives and their successors.
9.5 The Committee may, in its sole discretion, reduce the Crediting Rate
for future Plan Years in the event of material adverse Federal, state
or local tax law changes which increase the cost of the Program to the
Corporation.
9.6 Prior to paying any Benefit under this Program, the Committee may
require any Participant, Beneficiary, estate, heir, or personal legal
representative to provide information to the Committee. The Committee
may withhold payment of any Benefit under this Program until it
receives all such information including, but not limited to certified
copies of birth or death certificates and marriage licenses.
10. Termination and Amendment of the Program
10.1 The Board may, in its sole discretion, terminate or amend this Program
at any time. In the event the Program and the Deferral and/or
Rollover Elections are terminated with respect to a Participant, the
<PAGE>
10
Participant shall receive a single sum payment equal to his Account,
less any Benefits already paid to a Participant under this Program.
However, if the Participant or a Spouse is receiving a Benefit
pursuant to Section 6, Section 7 or Section 8 such Benefit shall
continue unchanged. Any single sum payment to a Participant shall be
made as soon as practicable following the date the Program is
terminated as to such Participant and shall be in lieu of any other
Benefit which may be payable to the Participant under this Program.
11. Employment Not Guaranteed
11.1 The existence of this Program or the execution of a Deferral or
Rollover Election does not constitute a contract for continued
employment between an Eligible Executive or a Participant and the
Company. The Company reserves the right to modify an Eligible
Executive's or Participant's compensation and to terminate the
employment of an Eligible Executive or a Participant for any reason
and at any time, notwithstanding the existence of this Program or of a
Deferral or Rollover Election.
12. Assignment of Benefits
12.1 The right to receive any Benefit under this Program may not be
pledged, hypothecated, transferred, or assigned nor is it subject to
garnishment, attachment or other legal or equitable process.
13. Tax Withholding
13.1 The Company shall deduct from all Benefits paid under this Program all
applicable Federal, state, local and foreign taxes required by law to
be withheld. Participants or Beneficiaries under this Program must
provide all information required by law in order to report payments to
any taxing jurisdiction.
<PAGE>
11
14. Tax Consequences of Program
14.1 The Company makes no representations or warranties with respect to any
tax consequences of the Program. Participants are advised to consult
their own estate planner and tax advisor concerning the Federal, state
and local income, estate and inheritance tax consequences of the
Program especially in the event such tax laws change in the future.
15. Life Insurance and Participant's Health
15.1 The current health condition of a Participant will not prevent
participation in the Program.
15.2 The Company, in its sole discretion, may, but shall not be required
to, purchase life insurance policies on the life of a Participant in
such amounts and in such forms as the Company may choose. The Company
will be the owner and beneficiary of such life insurance policies.
Neither the Participant, his Beneficiary, estate, heirs, or personal
legal representatives shall have any interest whatsoever in such life
insurance policies. As a condition to participating in this Program,
a Participant must complete an accurate, truthful health statement and
at the request of the Company shall submit to medical examinations and
supply information and execute documents as may be required by the
insurance company or companies to whom the Company has applied for
insurance.
16. Misrepresentations by Participant
16.1 The Participant will be required to warrant that all information
supplied to the Company and/or insurance companies is accurate and
complete. If a Participant makes or has made any material
misrepresentation or omission which results in a cost or loss to the
Company, the Company in its sole discretion may pay to the Participant
or his Beneficiary an amount equal to his Award and/or Rollover under
this Program, less any Benefits already paid.
<PAGE>
12
17. Suicide
17.1 Should a Participant commit suicide within two years after the
Deferral Date of any Award or Rollover, the Company's only obligation
under this Program will be to pay the Award and/or Rollover to the
Beneficiary, less any Benefits already paid.
18. Rights in Company Assets
18.1 Nothing in this Program or in a Deferral Election shall require the
Company to segregate any monies or assets from its general funds, or
to create a trust or make any special deposit for any Benefits to be
paid to any Participant, Beneficiary, heir, or personal legal
representative.
18.2 The rights of a Participant, Beneficiary, heir, or personal legal
representative under this Program shall be solely those of an
unsecured creditor of the Company. The maintaining of an Account for
a Participant by the Corporation for bookkeeping purposes creates no
security interest in any assets of the Company. Any insurance policy
or other asset acquired or held by the Corporation shall not be deemed
to be held under any trust for the benefit of the Participant, his
Beneficiaries, his heirs, his estate, or his personal legal
representatives or to be security for the performance of the
obligations of the Company under this Program, and shall be, and
remain, a general, unpledged and unrestricted asset of the Company.
19. Vesting
19.1 All Awards deferred and Rollovers transferred to a Participant's
Account shall be vested and will not be subject to forfeiture for any
reason.
<PAGE>
13
20. Severability
20.1 The invalidity or unenforceability of any provision of this Program or
of a Deferral Election and Rollover Election shall in no way affect
the validity or enforceability of any other provision of this Program.
21. Captions
21.1 The captions at the head of a section or paragraph of this Program are
designed for convenience of reference only and are not to be resorted
to for the purpose of interpreting any provision of this Program.
22. Pronouns
22.1 The masculine pronoun shall mean the feminine pronoun and the singular
shall include the plural wherever appropriate.
23. Construction
23.1 This Program and any Deferral Election or Rollover Election shall be
governed by the laws of the Commonwealth of Pennsylvania.
<PAGE>
EXHIBIT 11
H. J. HEINZ COMPANY AND SUBSIDIARIES
COMPUTATION OF NET INCOME PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Fiscal Year Ended
-----------------------------
May 1, May 3, April 27,
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Primary income per share:
Net income..................................... $ 659,319 $ 591,025 $ 602,944
Less-preferred dividends....................... 56 64 71
--------- --------- ---------
Net income applicable to common stock.......... $ 659,263 $ 590,961 $ 602,873
========= ========= =========
Average common shares outstanding and
common stock equivalents........................ 377,156 372,806 385,218
========= ========= =========
Net income per share--primary.................. $ 1.75 $ 1.59 $ 1.57
========= ========= =========
Fully diluted income per share:
Net income..................................... $ 659,319 $ 591,025 $ 602,944
========= ========= =========
Average common shares outstanding and
common stock equivalents...................... 377,156 372,806 385,218
Additional common shares assuming:
Conversion of $1.70 third cumulative
preferred stock.............................. 451 511 626
Additional common shares assuming options
were
exercised at the year-end market price...... 1,491 1,501 130
--------- --------- ---------
379,098 374,818 385,974
========= ========= =========
Net income per share--fully diluted............ $ 1.74 $ 1.58 $ 1.56
========= ========= =========
</TABLE>
Note: Prior years share and per share amounts have been adjusted to reflect
the three-for-two stock split, which was effective October 3, 1995.
<PAGE>
Exhibit 13
MANAGEMENT'S DISCUSSION AND ANALYSIS
H.J. Heinz Company and Subsidiaries
- ------------------------------------------------------------------------------
H.J. Heinz Company achieved record sales and earnings
for 1996. Sales increased 13% to over $9.11 billion and
earnings per share increased 10% to $1.75 per share.
Financial results for 1996 benefited from improved sales
volumes and prices in both domestic and overseas markets.
The record $1.18 billion invested in acquisitions in 1995
has strengthened the company's core product categories and
expanded growth prospects in emerging markets around the
world.
During 1996, the company continued to reposition its
portfolio of businesses through strategic acquisitions and
divestitures. Over the course of the last two fiscal years
(1995 and 1996), the company has made the following
acquisitions: in pet food--the North American pet food
business of The Quaker Oats Company (the "Pet Food
Business"), Nature's Recipe Pet Food product line, and
Alimentos Pilar S.A. of Argentina; in weight control--The
All American Gourmet Company, maker of The Budget Gourmet
brand of frozen meals and side dishes; in tuna--a majority
interest in Indian Ocean Tuna Ltd., located in the
Seychelles, and the Mareblu brand in Italy; in infant
foods--a majority interest in PMV/Zabreh in the Czech
Republic, an additional investment in Kecskemeti
Konzervgyar RT in Hungary, the Family Products Division of
Glaxo India, Ltd., the Farley's infant foods and adult
nutrition business, Fattoria Scaldasole S.p.A. in Italy,
and Earth's Best, Inc., a leading marketer of organic
infant foods in the U.S.; and in foodservice--Borden's
foodservice group in the U.S., Britwest Ltd. in the United
Kingdom, the Craig's brand of jams and dressings in New
Zealand, and Dega, a foodservice company in Italy.
Divestitures of non-strategic businesses include: a
domestic bulk oil business, an overseas sweetener
business, the Weight Watchers Magazine and two regional
dry pet food product lines. Acquisitions and divestitures
affect year-to-year comparisons of both sales and
operating income.
Continued implementation of cost reduction and
productivity enhancements has also added to the strong
1996 financial performance.
On September 12, 1995, the Board of Directors authorized
a three-for-two common stock split, effective October 3,
1995. There was no adjustment in the par value or the
total number of authorized common shares. All common share
and per common share data in this report reflect the
October 3, 1995 three-for-two common stock split.
- ------------------------------------------------------------------------------
RESULTS OF
OPERATIONS 1996 versus 1995: Sales for 1996 increased $1.03
billion, or 13%, to $9.11 billion from $8.09 billion in
1995. The increase was primarily due to acquisitions (net
of divestitures) as well as volume and price. Domestic
operations contributed approximately 57% of consolidated
sales in each year. Fiscal 1996 comprised 52 weeks
compared to 53 weeks in 1995.
Acquisitions (net of divestitures) contributed $617.3
million, or 8%, to the sales increase. Fiscal 1995
acquisitions impacting the year-to-year sales dollar
comparison included: the Pet Food Business; The All
American Gourmet Company; Farley's; and the Family
Products Division of Glaxo India, Ltd. Sales also
benefited from the following Fiscal 1996 acquisitions:
PMV/Zabreh; Kecskemeti Konzervgyar RT; Britwest Ltd.;
Fattoria Scaldasole S.p.A.; Craig's; Indian Ocean Tuna
Ltd.; Earth's Best, Inc.; and Nature's Recipe.
Divestitures impacting the sales comparison include a
domestic bulk oil business and an overseas sweetener
business.
Volume increased $313.5 million, or 4%, in 1996. Foreign
volume increases occurred in seafood, pasta, Heinz beans,
sauces/pastes and infant foods. Domestic volume increased
in StarKist tuna, Ore-Ida foodservice frozen potatoes,
pasta, coated products, Bagel Bites and Heinz ketchup
34
<PAGE>
offset by decreases in Weight Watchers brand dairy
products and single-serve condiments.
Prices increased $85.8 million, or 1%, in 1996.
Overseas, prices increased in infant foods, Heinz beans
and edible oil. Domestic price increases occurred in Heinz
ketchup, single-serve condiments and Ore-Ida retail frozen
potatoes while decreases occurred in StarKist tuna, frozen
entrees (including weight control) and pet food.
The strengthening of overseas currencies, particularly
in New Zealand and Western Europe, against the U.S. dollar
increased sales $60.4 million, or less than one percent.
Gross profit increased $369.7 million to $3.34 billion
from $2.97 billion a year ago. The ratio of gross profit
to sales decreased slightly to 36.6% from 36.7%. The
current year's gross profit ratio was impacted by
repositioning the business portfolio through acquisitions
and divestitures, cost reductions, profit mix and the
effect of increased goodwill amortization associated with
recent acquisitions. In the fourth quarter, gross profit
was also impacted by gains relating to the sale of the
Weight Watchers Magazine and the sale of two regional dry
pet food product lines. (See Note 12 to the Consolidated
Financial Statements.) The gains were offset in the fourth
quarter in selling, general and administrative expense by
restructuring charges at certain overseas affiliates and
an increase in marketing expense of $27.5 million, or 12%.
Selling, general and administrative (SG&A) expenses
increased $237.9 million to $2.05 billion from $1.81
billion and increased slightly as a percentage of sales to
22.5% from 22.4%. As a percentage of sales, increased
general and administrative expenses (due mainly to
acquisitions) and increased marketing expenses were offset
by lower selling and distribution expenses.
Total marketing support (including trade and consumer
promotions and media) increased 15% to $1.97 billion on a
sales increase of 13%.
Operating income increased $131.8 million, or 11%, to
$1.29 billion from $1.16 billion for last year. The
increase in operating income was primarily due to the
increase in gross profit, partially offset by increased
marketing expenses; higher selling and distribution
expenses related to increased volume; and higher general
and administrative expenses associated with acquisitions.
Domestic operations provided approximately 57% of
operating income in both 1996 and 1995.
Attendance at the Weight Watchers meeting business in
the U.S. was adversely affected by the severe winter
weather and an industry-wide decrease in attendance.
Although the entire domestic weight-loss industry
continues to show weakness, the Weight Watchers meetings
market share exceeds 50%. As a result of an improved cost
structure and an established infrastructure, Weight
Watchers meeting operations are well positioned to grow
profitably if the percentage of dieters using weight-loss
services increases. A new spring marketing program was
launched early in the U.S. and has shown an increase in
attendance compared to the poor winter diet season. Weight
Watchers attendance was up in Australia, Scandinavia and
Brazil.
Frozen entree volume (including weight control) was flat
in a very competitive marketplace, where downward pricing
pressures in the U.S. affected profitability. The company
anticipates additional operating efficiencies related to
the further integration of The Budget Gourmet product
lines in 1997. In addition, price increases are beginning
to be realized in early Fiscal 1997.
Heinz U.K.'s results improved significantly over the
prior year, primarily as a result of improved sales
volumes and prices.
The company's New Zealand affiliate, Wattie's Ltd.,
experienced operational difficulties as new poultry
production facilities were brought on-line during 1996.
Poor poultry market conditions also impacted the New
Zealand operations, as well as higher commodity prices in
the frozen food business and more competitive markets in
the frozen food and ice cream businesses. Improved results
are expected in 1997, particularly in the poultry
business.
The company continues to invest in Eastern Europe. In
general, the Eastern European operations have progressed,
but have not yet contributed margins comparable to the
company's traditional product lines.
As expected, cost synergies resulting from the
combination of recently acquired businesses with existing
company operations have been realized in the current year.
In connection with
35
<PAGE>
the acquisition of the Pet Food Business, the closure of the
cannery at the Topeka, Kansas factory (dedicating that
facility to the production of dry pet food) and the
combination of selling, distribution and administrative
functions with existing company operations have produced
efficiencies that have met or exceeded expectations.
Also during the year, the Weight Watchers Gourmet Food
Company announced the closure of The All American Gourmet
plant in Atlanta, Georgia, where operations were phased
out in January. Production has been consolidated with
other company facilities. Further synergies are
anticipated as the manufacturing operations related to
this and other acquisitions continue to be integrated.
Non-operating expenses totaled $263.9 million in 1996
compared to $217.8 million in 1995. Net interest expense
increased 34% to $232.6 million from $174.0 million, due
mainly to higher average borrowings resulting from prior-
year acquisitions and from repurchases of company stock
under the stock repurchase program.
The effective tax rate was 35.6% in 1996 and 37.0% in
1995. The current-year tax rate was favorably affected by
the recognition of operating losses overseas and higher
profits from operations in lower tax jurisdictions. A
full-year tax rate of approximately 38.0% is more
indicative of expected future tax rates. (See Notes 4 and
12 to the Consolidated Financial Statements.)
Net income increased $68.3 million, or 12%, to $659.3
million from $591.0 million in the prior year. Earnings
per share increased to $1.75 from $1.59. The average
number of shares used for the calculation of earnings per
share increased to 377.2 million from 372.8 million due
mainly to increased shares outstanding resulting from
stock options exercised and higher common stock
equivalents due to a higher average share price. The
increase in the average number of shares caused current-
year earnings per share to decrease $0.02 per share.
The impact of fluctuating exchange rates for 1996
remained relatively consistent on a line-by-line basis
throughout the Consolidated Statement of Income.
1995 versus 1994: Sales for 1995 increased $1.04
billion, or 15%, to $8.09 billion from $7.05 billion in
1994. Volume growth, acquisitions and the effect of a
weaker U.S. dollar against most foreign currencies
contributed to the sales increase. Overall, prices
remained stable. Fiscal 1995 comprised 53 weeks compared
to 52 weeks in 1994.
Volume increased $436.3 million, or 6%, in 1995,
approximately two-thirds of which came from domestic
sources. In the U.S., increases occurred in Ore-Ida frozen
potatoes, StarKist tuna, coated products, Bagel Bites,
Heinz ketchup, pasta and pet food. Overseas, most core
product categories exhibited strong growth, except for
Heinz soups and beans in the United Kingdom. The overseas
core product growth was driven by infant foods and sauces/
pastes.
Acquisitions increased sales $488.1 million, or 7%.
Acquisitions included: the Pet Food Business; The All
American Gourmet Company, maker of The Budget Gourmet
brand of frozen meals and side dishes; the Family Products
Division of Glaxo India, Ltd., which produces a wide range
of nutritional drinks, baby food and other consumer
products; Farley's infant foods and adult nutrition
business from The Boots Company PLC; the Borden
Foodservice Group, a unit of Borden, Inc.; Dega, a
foodservice products company located in Italy; and other
small acquisitions.
Overall, prices remained relatively stable, increasing
by $10.6 million in 1995, with increases abroad partially
offset by decreases in domestic markets. Foreign price
increases on infant foods, seafood, soap and cooking oil
were partially offset by price decreases in core products
in the United Kingdom. In the U.S., price decreases in
Weight Watchers brand frozen entrees, StarKist tuna and
pet food were partially offset by increases in Ore-Ida
frozen potatoes, soup, Weight Watchers meeting fees,
sauces/pastes and Heinz ketchup.
Foreign currencies strengthened against the U.S. dollar,
increasing sales $120.7 million, or 2%, which represented
the first increase after three consecutive years of
unfavorable currency movements. This increase came
primarily from sales in New Zealand, the United Kingdom,
Japan and Australia.
36
<PAGE>
In the United Kingdom, competitive pressures and a
difficult trade environment continued to affect both sales
volume and pricing. In 1995, unseasonably warm weather
adversely affected soup sales. In the fourth quarter of
1995, however, Heinz U.K.'s results showed improvement due
to better pricing and overall volume improvements.
Gross profit increased $302.2 million in 1995 to $2.97
billion from $2.66 billion in 1994, due primarily to
higher sales levels. The ratio of gross profit to sales
decreased 1.1% to 36.7%. An unfavorable profit mix related
to recent acquisitions, including the associated
amortization of goodwill, prior-year divestitures and
higher foodservice sales negatively affected the current
year's gross profit ratio. Improvements resulting from
production efficiencies implemented in prior years had a
positive effect on gross profit.
The company completed several productivity improvement
and cost reduction initiatives under its two-year
restructuring program for which a pretax charge of $192.3
million had been recorded in 1993. During 1994, the
company reduced headcount at its Australian operations;
closed a pet food plant in Pascagoula, Mississippi;
downsized and consolidated StarKist Seafood headquarters
functions with those of Heinz Pet Products in Newport,
Kentucky; realigned production at Ore-Ida's Ontario,
Oregon factory; downsized the domestic administration of
Weight Watchers International meeting operations;
downsized the administrative functions of the Italian
operations; reduced manufacturing headcount and
reorganized administrative functions in the United
Kingdom; consolidated domestic sales service functions
into the Heinz Service Company; and realigned production
between Canada and the United States. During 1995, the
company completed the transfer of pickle and soup
production from Canadian to U.S. facilities; closed the
Chef Francisco frozen soup factory in Eugene, Oregon and
relocated production to other company facilities; further
reduced manufacturing and administrative headcount in the
United Kingdom; downsized the foreign administration of
Weight Watchers meeting operations; and further
consolidated sales service functions related to the Heinz
Service Company. In total, more than 2,700 positions were
eliminated.
In 1995, the company initiated additional productivity
improvements for which a charge was recorded in operating
income. The 1995 initiatives included: severance,
relocation and exit costs associated with the downsizing
of the company's Crestar Food Products unit; the
relocation of certain administrative functions related to
the Weight Watchers Gourmet Food business; non-cash asset
write-downs associated with the company's distribution
system and severance costs in Italy. The effect of the
1995 charge was immaterial.
SG&A expenses increased $87.7 million to $1.81 billion
from $1.72 billion, but decreased as a percentage of sales
to 22.4% from 24.5%. Increased selling and distribution
costs associated with acquisitions and higher volume
contributed the majority of the increase. The improved
ratio of SG&A expenses as a percentage of sales resulted
mainly from a reduction in marketing and administrative
costs in existing businesses.
Total marketing support (including trade and consumer
promotions and media) increased 12% to $1.7 billion, which
helped fuel sales volume and profit growth.
Operating income increased $87.5 million in 1995 to
$1.16 billion from $1.07 billion. In 1994, operating
income included the gain on the sale of the confectionery
business of Heinz Italia and the sale of the
Near East specialty rice business, which together totaled
$127.0 million. Excluding the gain, operating income
increased $214.5 million, or 23%. The increase in
operating income was primarily due to the sales-driven
increase in gross profit.
The Weight Watchers businesses (meetings and food)
showed significant profit improvement in 1995. Meeting
attendance in the U.S. increased over 1994, which was
affected by the Los Angeles earthquake, a severe winter
and an industry-wide decline in attendance. Although the
entire weight-loss industry continued to show weakness in
1995, the Weight Watchers meetings market share exceeded
50%. Weight Watchers food business showed improved
profitability mainly through more targeted marketing,
reduced administrative expenditures and cost savings from
productivity enhancements.
37
<PAGE>
Non-operating expenses totaled $217.8 million in 1995
compared to $146.0 million in 1994. Interest expense
increased $61.3 million, or 41%, due to higher short-term
interest rates and higher debt related to current-year
acquisitions and the company's share repurchase program.
The effective tax rate was 37.0% in 1995 and 34.6% in
1994. The lower 1994 effective tax rate reflects tax
benefits from overseas operations ($57.3 million). (See
Note 4 to the Consolidated Financial Statements.)
Net income decreased $11.9 million, or 2%, to $591.0
million from $602.9 million in the prior year, which
included the gain on the sale of the confectionery and
specialty rice businesses. Earnings per share increased to
$1.59 from $1.57. Earnings per share benefited slightly
from a reduction in the number of common shares
outstanding resulting from the company's share repurchase
program. The 1994 results included a gain of $0.16 per
share from the sale of the confectionery business of Heinz
Italia and the sale of the Near East specialty rice
business and the recognition of certain tax benefits
overseas of $0.15 per share. Excluding the $0.16 per share
gain from the sale of the confectionery and specialty rice
businesses, earnings per share increased $0.18, or 13%.
The impact of fluctuating exchange rates for 1995
remained relatively consistent on a line-by-line basis
throughout the Consolidated Statement of Income.
- ------------------------------------------------------------------------------
LIQUIDITY AND
FINANCIAL POSITION In 1996, cash provided by operating activities was
sufficient to provide for dividend payments to
shareholders, as well as productivity improvements and
plant expansions. Divestitures combined with the sale of
certain investments were used to provide for current-year
acquisitions. Proceeds from stock options exercised and
cash from the related tax benefit approximated cash used
for current-year share repurchases. Overall, total
borrowings decreased slightly.
Return on average shareholders' equity (ROE) was 25.5%
in 1996, 24.6% in 1995 and 25.9% in 1994. Pretax return on
average invested capital (ROIC) was 21.8% in 1996, 22.1%
in 1995 and 22.7% in 1994.
Cash provided by operating activities was $737.1 million
in 1996, compared to $752.5 million in 1995. The slight
decrease in 1996 versus 1995 was the result of higher
working capital needs, due mainly to higher sales levels.
Cash used for accrued liabilities totaled $114.0 million
compared to $72.6 million a year ago, resulting mainly
from the funding of accruals established upon the purchase
of certain businesses. (See Note 2 to the Consolidated
Financial Statements.)
In 1995, cash provided by operating activities decreased
$178.7 million to $752.5 million, from $931.2 million in
1994. The decrease was the result of higher taxes paid and
higher operating working capital requirements principally
related to increased sales levels.
Cash used for investing activities was $290.1 million in
1996 versus $1.47 billion in 1995. The decrease is mainly
due to lower current-year spending on acquisitions, which
totaled $156.0 million versus $1.18 billion a year ago.
(See Note 2 to the Consolidated Financial Statements.)
Capital expenditures totaled $334.8 million in 1996 and
$341.8 million in 1995. Both years reflected expenditures
for productivity improvements and plant expansions,
principally at the company's Ore-Ida, Heinz Pet Products,
Heinz U.S.A., Wattie's, Weight Watchers Gourmet Food
Company, StarKist Seafood and United Kingdom operations.
Purchases and sales/maturities of short-term investments
decreased in 1996. In 1995, increased activity provided
liquidity to fund various acquisitions made by the
company. In addition, the company periodically sells a
portion of its short-term investment portfolio in order to
reduce its borrowings. Investments in tax benefits
provided $62.1 million compared to $14.4 million a year
ago, due mainly to the company's sale of certain domestic
investments.
Financing activities used $470.8 million in 1996
compared to providing $733.4 million in 1995. The company
borrowed funds totaling $1.19 billion in 1995 versus
making net repayments of $81.7 million in the current
year. Cash used for dividends paid to shareholders
increased by $36.5 million, while treasury stock purchases
decreased $118.5 million. Stock options exercised provided
an additional $51.6 million in 1996.
38
<PAGE>
The average amount of short-term debt outstanding
(excluding the long-term portion of domestic commercial
paper) during 1996, 1995 and 1994 was $1.5 billion, $1.2
billion and $1.2 billion, respectively. Total short-term
debt had a weighted average interest rate during 1996 of
6.5% and at year-end of 6.2%. The weighted average
interest rate on short-term debt during 1995 was 6.1% and
at year-end was 6.7%.
Aggregate domestic commercial paper had a weighted
average interest rate during 1996 of 5.8% and at year-end
of 5.4%. In 1995, the weighted average rate was 5.3% and
the rate at year-end was 6.1%. Based upon the amount of
commercial paper recorded at May 1, 1996, a variance of
1/8% in the related interest rate would cause interest
expense to change by approximately $1.9 million. The
company continues to evaluate long-term financing vehicles
in order to reduce short-term variable interest rate debt.
On September 5, 1995, the company amended the line of
credit agreements which support its domestic commercial
paper programs, reducing availability and extending
maturity dates. Total availability under the credit
agreements is $2.0 billion, compared to $2.3 billion under
the Fiscal 1995 agreements.
The $1.5 billion of short-term credit lines that were
set to expire in September 1995 were reduced to $1.2
billion and extended to September 1996. It is expected
that the company will extend the maturity date of these
lines prior to their expiration.
The maturity date of the remaining $800.0 million of
line of credit agreements was extended from September 1999
to September 2000. As of May 1, 1996, $800.0 million of
domestic commercial paper outstanding is classified as
long-term debt due to the long-term nature of the
supporting line of credit agreements. At May 3, 1995, a
similar amount of domestic commercial paper was classified
as long-term. As of May 1, 1996 and May 3, 1995, domestic
commercial paper of $450.0 million was privately placed.
On September 12, 1995, the Board of Directors raised the
quarterly dividend on the company's common stock from
$0.24 per share to $0.26 1/2 per share for an indicated
annual rate of $1.06 per share. The company paid $381.9
million in dividends to both common and preferred
shareholders, an increase of $36.5 million, or 11%, over
1995. The dividend rate in effect at the end of each year
resulted in a payout ratio of 60.6% in 1996, 60.5% in 1995
and 56.2% in 1994.
In 1996, the company repurchased 4.8 million shares of
treasury stock, or 1% of the amount outstanding at the
beginning of Fiscal 1996, at a cost of $155.2 million. As
of May 1, 1996, the company had repurchased 10.1 million
shares as part of the current 15.0 million share
repurchase program, which was authorized by the Board of
Directors on September 13, 1994. The previous 15.0 million
share repurchase program, which began in June 1993, was
completed in September 1994. During 1995, 11.5 million
shares were repurchased at a cost of $273.7 million. The
company may reissue repurchased shares upon the exercise
of stock options, conversion of preferred stock and for
general corporate purposes.
The Board of Directors adopted, effective June 12, 1996,
subject to the approval of the shareholders at the annual
meeting in September 1996, a new stock option plan
providing for the grant of up to 15.0 million shares of
common stock at any time over the next ten years. As of
June 12, 1996, options for approximately 2.0 million
shares had been contingently granted under this plan. In
general, the terms of the 1996 plan are similar to the
company's other stock option plans. (See Note 8 to the
Consolidated Financial Statements.)
During 1995, the company participated in the formation
of a business (the "entity") which purchases a portion of
the trade receivables generated by the company. The
company sells receivables to Jameson, Inc., a wholly owned
subsidiary, which then sells undivided interests in the
receivables to the entity. Outside investors contributed
$95.4 million in capital to the entity. The company
consolidates the entity, and the capital contributed by
the outside investors is classified as minority interest
("other long-term liabilities") on the Consolidated
Balance Sheets.
The company uses derivative financial instruments for
the purpose of hedging currency, commodity price and
interest rate exposures which exist as part of ongoing
business opera-
39
<PAGE>
tions. 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.
(See Notes 1 and 11 to the Consolidated Financial
Statements.)
On August 24, 1995 and September 7, 1995, the Howard
Heinz Endowment, the Vira I. Heinz Endowment, the Heinz
Family Foundation and certain Heinz family trusts sold a
total of 21.8 million shares of the company's common stock
in an underwritten secondary offering. The secondary
offering was priced at $28.25 per share. The company did
not sell any shares in the offering and did not receive
any of the proceeds.
In March 1995, the Financial Accounting Standards Board
("FASB") issued Financial Accounting Standard ("FAS") No.
121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of." The company
will adopt the statement in Fiscal 1997, as required.
Management anticipates that implementation of the new
standard will not have a material effect on results of
operations or financial position. (See Note 1 to the
Consolidated Financial Statements.)
In October 1995, the FASB issued FAS No. 123,
"Accounting for Stock-Based Compensation." This statement
will be effective beginning in Fiscal 1997. This statement
allows companies either to continue to account for stock-
based employee compensation plans using the intrinsic
value based method of accounting prescribed by Accounting
Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" ("Opinion 25"), or to adopt a fair
value based method, as defined in the new standard. The
company will continue to account for stock compensation in
accordance with Opinion 25.
The impact of inflation on both the company's financial
position and results of operations has been minimal and is
not expected to adversely affect 1997 results.
The company's financial position continues to remain
strong, enabling it to meet cash requirements for
operations, capital expansion programs and dividends to
shareholders.
- ------------------------------------------------------------------------------
OUTLOOK The company expects total debt to decrease in 1997
through continued strong operating cash flows, improved
working capital management and capital expenditure
controls, which should result in improved profitability
through lower interest charges. The company will, however,
continue to evaluate strategic acquisitions in its core
categories as they arise and to make opportunistic share
repurchases, both of which could impact total debt.
- ------------------------------------------------------------------------------
RECENT DEVELOPMENTS On July 10, 1996, the company acquired Southern Country
Foods Limited, one of the world's largest producers of
canned corned beef and meals. Southern Country Foods, with
annual sales of approximately $55 million, sells two-
thirds of its products in the Pacific Rim, the Middle East
and Canada and will operate as part of H.J. Heinz
Australia Ltd.
Also on July 10, 1996, the Board of Directors authorized
the repurchase of up to an additional 15.0 million shares
of common stock, beginning upon the conclusion of the
current repurchase authorization. Such repurchases may
take place over an extended period of time.
- ------------------------------------------------------------------------------
STOCK MARKET
INFORMATION H.J. Heinz Company common stock is traded principally on
the New York Stock Exchange and the Pacific Stock
Exchange, under the symbol HNZ. The number of shareholders
of record of the company's common stock as of June 28,
1996 approximated 62,496. The closing price of the common
stock on the New York Stock Exchange composite listing on
May 1, 1996 was $33 3/4. All common stock price
information reflects the three-for-two stock split, which
was effective October 3, 1995.
40
<PAGE>
Stock price information for common stock by quarter
follows:
<TABLE>
<CAPTION>
Stock Price Range
------------------
High Low
---------------------------------
<S> <C> <C>
1996
FIRST $ 31 3/8 $ 27 5/8
SECOND 31 7/8 27 5/8
THIRD 34 7/8 30 5/8
FOURTH 36 5/8 30 7/8
---------------------------------
1995
First $ 23 5/8 $ 21 1/8
Second 25 5/8 21 5/8
Third 27 1/2 23 5/8
Fourth 28 5/8 24 3/4
---------------------------------
</TABLE>
- ------------------------------------------------------------------------------
SEGMENT AND
GEOGRAPHIC DATA The company is engaged principally in one line of
business--processed food products--which represents more
than 90% of consolidated sales. The following table
presents information about the company by geographic area.
There were no material amounts of sales or transfers among
geographic areas and no material amounts of United States
export sales.
<TABLE>
<CAPTION>
(Dollars in thousands) Domestic Foreign Worldwide North America Europe Asia/Pacific Other
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1996
SALES $ 5,235,847 $ 3,876,418 $ 9,112,265 $ 5,598,286 $ 2,133,690 $ 1,085,747 $ 294,542
OPERATING INCOME 739,807 547,765 1,287,572 801,090 336,481 114,239 35,762
IDENTIFIABLE ASSETS 4,801,790 3,821,901 8,623,691 5,099,632 2,289,919 978,292 255,848
CAPITAL EXPENDITURES* 185,874 148,913 334,787 195,517 65,485 40,294 33,491
DEPRECIATION AND
AMORTIZATION EXPENSE 206,912 136,897 343,809 224,824 72,530 30,674 15,781
1995
Sales $ 4,628,507 $ 3,458,287 $ 8,086,794 $ 4,982,959 $ 1,881,013 $ 1,006,198 $ 216,624
Operating income 656,897 498,912 1,155,809 715,592 282,941 121,951 35,325
Identifiable assets 4,812,122 3,435,066 8,247,188 5,161,418 1,979,351 919,988 186,431
Capital expenditures* 188,099 153,689 341,788 201,912 72,384 48,435 19,057
Depreciation and
amortization expense 197,009 118,258 315,267 213,243 68,122 28,214 5,688
1994
Sales $ 4,021,436 $ 3,025,302 $ 7,046,738 $ 4,380,310 $ 1,685,167 $ 816,943 $ 164,318
Operating income+ 534,395 533,948 1,068,343 587,622 371,794 89,359 19,568
Identifiable assets 3,657,114 2,724,032 6,381,146 3,992,820 1,551,477 729,240 107,609
Capital expenditures* 154,505 120,547 275,052 167,473 65,802 33,491 8,286
Depreciation and
amortization expense 161,219 98,590 259,809 177,398 54,543 23,433 4,435
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Excludes property, plant and equipment acquired through acquisitions.
+ Fiscal 1994 domestic and foreign operating income includes the gain on
the sale of the confectionery and specialty rice businesses of $46.3 million
and $80.7 million, respectively.
41
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
H.J. Heinz Company and Subsidiaries
<TABLE>
<CAPTION>
Fiscal Year Ended MAY 1, 1996 May 3, 1995 April 27, 1994
- ------------------------------------------------------------------------------
(Dollars in thousands, except
per share data) (52 weeks) (53 weeks) (52 weeks)
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
CONSOLIDATED STATEMENTS OF
INCOME:
Sales $ 9,112,265 $ 8,086,794 $ 7,046,738
Cost of products sold 5,775,357 5,119,597 4,381,745
- ------------------------------------------------------------------------------
Gross profit 3,336,908 2,967,197 2,664,993
Selling, general and
administrative expenses 2,049,336 1,811,388 1,723,651
Gain on sale of confectionery
and specialty rice
businesses - - 127,001
- ------------------------------------------------------------------------------
Operating income 1,287,572 1,155,809 1,068,343
Interest income 44,824 36,566 36,771
Interest expense 277,411 210,585 149,243
Other expense, net 31,324 43,783 33,485
- ------------------------------------------------------------------------------
Income before income taxes 1,023,661 938,007 922,386
Provision for income taxes 364,342 346,982 319,442
- ------------------------------------------------------------------------------
Net income $ 659,319 $ 591,025 $ 602,944
==============================================================================
CONSOLIDATED STATEMENTS OF
RETAINED EARNINGS:
Amount at beginning of year $ 3,878,988 $ 3,633,385 $ 3,356,399
Net income 659,319 591,025 602,944
Cash dividends:
Common stock 381,871 345,358 325,887
Preferred stock 56 64 71
- ------------------------------------------------------------------------------
Amount at end of year $ 4,156,380 $ 3,878,988 $ 3,633,385
==============================================================================
PER COMMON SHARE AMOUNTS:
Net income $ 1.75 $ 1.59 $ 1.57
Cash dividends $ 1.03 1/2 $ 0.94 $ 0.86
==============================================================================
Average shares for earnings
per share 377,155,837 372,806,306 385,218,024
==============================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
42
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
H.J. Heinz Company and Subsidiaries
<TABLE>
<CAPTION>
Fiscal Year Ended MAY 1, 1996 May 3, 1995 April 27, 1994
- ----------------------------------------------------------------------------
(Dollars in thousands) (52 weeks) (53 weeks) (52 weeks)
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 659,319 $ 591,025 $ 602,944
Adjustments to reconcile net
income to cash provided by
operating activities:
Depreciation 254,640 238,229 200,035
Amortization 89,169 77,038 59,774
Deferred tax provision 135,235 134,304 106,803
Gain on sale of
confectionery and
specialty rice businesses - - (127,001)
Other items, net (82,198) (43,680) (55,767)
Changes in current assets
and liabilities, excluding
effects of acquisitions and
divestitures:
Receivables (222,894) (77,039) 135,195
Inventories (102,269) (87,580) 9,742
Prepaid expenses and
other current assets (14,361) (27,634) 14,688
Accounts payable 126,596 111,361 67,660
Accrued liabilities (114,015) (72,644) (110,822)
Income taxes 7,866 (90,874) 27,954
- ---------------------------------------------------------------------------
Cash provided by operating
activities 737,088 752,506 931,205
- ---------------------------------------------------------------------------
INVESTING ACTIVITIES:
Capital expenditures (334,787) (341,788) (275,052)
Acquisitions, net of cash
acquired (156,006) (1,178,819) (95,685)
Proceeds from divestitures 82,061 52,497 265,573
Purchases of short-term
investments (982,824) (1,808,327) (598,486)
Sales and maturities of
short-term investments 1,050,971 1,800,992 680,208
Investment in tax benefits 62,081 14,436 1,400
Other items, net (11,637) (12,819) (5,377)
- ---------------------------------------------------------------------------
Cash (used for) investing
activities (290,141) (1,473,828) (27,419)
- ---------------------------------------------------------------------------
FINANCING ACTIVITIES:
Proceeds from long-term debt 4,860 573,689 991
Payments on long-term debt (46,791) (10,209) (18,249)
(Payments on) proceeds from
short-term debt, net (39,745) 630,310 (398,333)
Dividends (381,927) (345,422) (325,958)
Purchase of treasury stock (155,200) (273,671) (222,582)
Proceeds from minority
interest - 95,400 -
Proceeds from borrowings
against insurance policies 6,361 70,931 134,162
Repayments of borrowings
against insurance policies - (68,898) (65,264)
Exercise of stock options 95,853 44,263 22,645
Other items, net 45,788 17,014 11,042
- ---------------------------------------------------------------------------
Cash (used for) provided by
financing activities (470,801) 733,407 (861,546)
- ---------------------------------------------------------------------------
Effect of exchange rate
changes on cash and cash
equivalents (10,420) 13,717 (12,136)
- ---------------------------------------------------------------------------
Net (decrease) increase in
cash and cash equivalents (34,274) 25,802 30,104
Cash and cash equivalents at
beginning of year 124,338 98,536 68,432
- ---------------------------------------------------------------------------
Cash and cash equivalents at
end of year $ 90,064 $ 124,338 $ 98,536
===========================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
43
<PAGE>
CONSOLIDATED BALANCE SHEETS
H.J. Heinz Company and Subsidiaries
<TABLE>
<CAPTION>
Assets (Dollars in thousands) MAY 1, 1996 May 3, 1995
- ----------------------------------------------------------------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 90,064 $ 124,338
Short-term investments, at cost
which approximates market 18,316 82,693
Receivables (net of allowances:
1996 - $17,298 and 1995 -
$16,309) 1,207,874 1,030,790
Inventories:
Finished goods and work-in-
process 1,115,367 1,004,350
Packaging material and
ingredients 378,596 370,220
- ----------------------------------------------------------------------
1,493,963 1,374,570
- ----------------------------------------------------------------------
Prepaid expenses 221,669 190,412
Other current assets 14,806 20,219
- ----------------------------------------------------------------------
Total current assets 3,046,692 2,823,022
- ----------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT:
Land 62,243 60,955
Buildings and leasehold
improvements 824,308 804,762
Equipment, furniture and other 3,333,493 3,138,937
- ----------------------------------------------------------------------
4,220,044 4,004,654
Less accumulated depreciation 1,603,216 1,470,278
- ----------------------------------------------------------------------
Total property, plant and
equipment, net 2,616,828 2,534,376
- ----------------------------------------------------------------------
OTHER NON-CURRENT ASSETS:
Investments, advances and other
assets 573,645 543,032
Goodwill (net of amortization:
1996 - $211,693 and 1995 -
$163,793) 1,737,478 1,682,933
Other intangibles (net of
amortization: 1996 - $141,886
and 1995 - $117,430) 649,048 663,825
- ----------------------------------------------------------------------
Total other non-current assets 2,960,171 2,889,790
- ----------------------------------------------------------------------
Total assets $ 8,623,691 $ 8,247,188
======================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
44
<PAGE>
<TABLE>
<CAPTION>
Liabilities and Shareholders'
Equity (Dollars in thousands) MAY 1, 1996 May 3, 1995
<S> <C> <C>
- ----------------------------------------------------------------------
CURRENT LIABILITIES:
Short-term debt $ 994,586 $ 1,018,354
Portion of long-term debt due
within one year 87,583 55,937
Accounts payable 870,337 720,747
Salaries and wages 72,678 77,276
Accrued marketing 146,055 141,701
Other accrued liabilities 368,182 470,842
Income taxes 175,701 79,209
- ----------------------------------------------------------------------
Total current liabilities 2,715,122 2,564,066
- ----------------------------------------------------------------------
LONG-TERM DEBT AND OTHER
LIABILITIES:
Long-term debt 2,281,659 2,326,785
Deferred income taxes 319,936 348,576
Non-pension postretirement
benefits 209,994 220,673
Other 390,223 314,219
- ----------------------------------------------------------------------
Total long-term debt and other
liabilities 3,201,812 3,210,253
- ----------------------------------------------------------------------
SHAREHOLDERS' EQUITY:
Capital stock:
Third cumulative preferred,
$1.70 first series, $10 par
value 271 358
Common stock, 431,096,485
shares issued, $.25 par value 107,774 107,774
- ----------------------------------------------------------------------
108,045 108,132
Additional capital 154,602 121,291
Retained earnings 4,156,380 3,878,988
Cumulative translation
adjustments (155,753) (157,159)
- ----------------------------------------------------------------------
4,263,274 3,951,252
Less:
Treasury shares, at cost
(62,498,417 shares at May 1,
1996 and 65,587,400 shares at
May 3, 1995) 1,500,866 1,450,724
Unfunded pension obligation 32,550 -
Unearned compensation relating
to the ESOP 23,101 27,659
- ----------------------------------------------------------------------
Total shareholders' equity 2,706,757 2,472,869
- ----------------------------------------------------------------------
Total liabilities and
shareholders' equity $ 8,623,691 $ 8,247,188
======================================================================
</TABLE>
45
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
H.J. Heinz Company and Subsidiaries
- ------------------------------------------------------------------------------
1. SIGNIFICANT
ACCOUNTING POLICIES Fiscal Year: H.J. Heinz Company (the "company") operates
on a 52- or 53-week fiscal year ending the Wednesday
nearest April 30. However, certain foreign subsidiaries
have earlier closing dates to facilitate timely reporting.
Fiscal years for the financial statements included herein
ended May 1, 1996, May 3, 1995 and April 27, 1994.
Principles of Consolidation: The consolidated financial
statements include the accounts of the company and its
subsidiaries. All intercompany accounts and transactions
were eliminated. Certain prior-year amounts have been
reclassified in order to conform with the 1996
presentation.
Use of Estimates: The preparation of financial
statements in conformity with generally accepted
accounting principles requires management to make
estimates and assumptions that affect the reported amounts
of assets and liabilities, the disclosure of contingent
assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and
expenses during the reporting period. Actual results could
differ from these estimates.
Translation of Foreign Currencies: For all significant
foreign operations, the functional currency is the local
currency. Assets and liabilities of these operations are
translated at the exchange rate in effect at each year-
end. Income statement accounts are translated at the
average rate of exchange prevailing during the year.
Translation adjustments arising from the use of differing
exchange rates from period to period are included as a
component of shareholders' equity. Gains and losses from
foreign currency transactions are included in net income
for the period.
Cash Equivalents: Cash equivalents are defined as highly
liquid investments with original maturities of 90 days or
less.
Inventories: Inventories are stated at the lower of cost
or market. Cost is determined principally under the
average cost method.
Property, Plant and Equipment: Land, buildings and
equipment are recorded at cost. For financial reporting
purposes, depreciation is provided on the straight-line
method over the estimated useful lives of the assets.
Accelerated depreciation methods are generally used for
income tax purposes. Expenditures for new facilities and
improvements that substantially extend the capacity or
useful life of an asset are capitalized. Ordinary repairs
and maintenance are expensed as incurred. When property is
retired or otherwise disposed, the cost and related
depreciation are removed from the accounts and any related
gains or losses are included in income.
Intangibles: Goodwill and other intangibles arising from
acquisitions are being amortized on a straight-line basis
over periods not exceeding 40 years. The company regularly
reviews the individual components of the balances by
evaluating the future cash flows of the businesses to
determine the recoverability of the assets and recognizes,
on a current basis, any diminution in value.
Long-Lived Assets: In March 1995, the Financial
Accounting Standards Board ("FASB") issued Financial
Accounting Standard ("FAS") No. 121, "Accounting for the
Impairment of Long-Lived
46
<PAGE>
Assets and for Long-Lived Assets to Be Disposed Of." This
statement establishes accounting standards for the
impairment of long-lived assets, certain identifiable
intangibles, and goodwill related to those assets to be held
and used and for long-lived assets and certain identifiable
intangibles to be disposed of. This statement requires that
those assets to be held and used by an entity be reviewed
for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be
recoverable, and those assets to be disposed of be reported
at the lower of carrying amount or fair value less cost to
sell. The company will adopt the statement in Fiscal 1997.
Management anticipates that implementation of the new
standard will not have a material effect on results of
operations or financial position.
Revenue Recognition: The company generally recognizes
revenue upon shipment of goods to customers or upon
performance of services. However, in certain overseas
countries, revenue is recognized upon receipt of the
product by the customer.
Advertising Expenses: Advertising costs are generally
expensed in the year in which the advertising first takes
place.
Income Taxes: Deferred income taxes result primarily
from temporary differences between financial and tax
reporting. If it is more likely than not that some portion
or all of a deferred tax asset will not be realized, a
valuation allowance is recognized.
The company has not provided for possible U.S. taxes on
the undistributed earnings of foreign subsidiaries that
are considered to be reinvested indefinitely. Calculation
of the unrecognized deferred tax liability for temporary
differences related to these earnings is not practicable.
Where it is contemplated that earnings will be remitted,
credit for foreign taxes already paid generally will
offset applicable U.S. income taxes. In cases where they
will not offset U.S. income taxes, appropriate provisions
are included in the Consolidated Statements of Income.
Net Income Per Common Share: Net income per common share
has been computed by dividing income applicable to common
shareholders by the weighted average number of shares of
common stock outstanding and common stock equivalents
during the respective years. On September 12, 1995, the
company's Board of Directors authorized a three-for-two
common stock split, effective October 3, 1995. There was
no adjustment in the stock's par value or the total number
of authorized common shares. All common share and per
share amounts reflect the three-for-two common stock
split, effective October 3, 1995. Where appropriate,
prior-year amounts have been restated. Fully diluted
earnings per share are not significantly different from
primary earnings per share and, accordingly, are not
presented.
Stock-Based Employee Compensation Plans: Stock-based
compensation is accounted for by using the intrinsic value
based method in accordance with Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("Opinion 25"). In October 1995, the FASB
issued FAS No. 123, "Accounting for Stock-Based
Compensation," which allows companies to either continue
to account for stock-based compensation using Opinion 25,
or to adopt a fair value based method of accounting. The
company intends to continue with its current method of
accounting in accordance with Opinion 25.
Financial Instruments: The company uses derivative
financial instruments for the purpose of hedging currency,
price and interest rate exposures which exist as part of
ongoing business operations. 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.
47
<PAGE>
-- Interest Rate Swap Agreements: The company may
utilize interest rate swap agreements to lower funding
costs, to diversify sources of funding or to alter
interest rate exposure. Amounts paid or received on
interest rate swap agreements are deferred and recognized
as adjustments to interest expense. Gains and losses
realized upon the settlement of such contracts are
deferred and amortized to interest expense over the
remaining term of the debt instrument or are recognized
immediately if the underlying instrument is settled.
-- Foreign Currency Contracts: The company enters into
forward, option and swap contracts to hedge transactions
denominated in foreign currencies in order to reduce the
currency risk associated with fluctuating exchange rates.
Such contracts are used primarily to hedge purchases of
certain raw materials and finished goods and payments
arising from certain intercompany transactions with
foreign subsidiaries. Gains and losses are deferred in the
cost basis of the underlying transaction.
-- Commodity Contracts: In connection with purchasing
certain commodities for future manufacturing requirements,
the company enters into commodities futures and option
contracts, as deemed appropriate, to reduce the effect of
price fluctuations. Such contracts are accounted for as
hedges, with gains and losses recognized as part of cost
of products sold, and generally have a term of less than
one year.
The cash flows related to the above financial
instruments are classified in the Statements of Cash Flows
in a manner consistent with those of the transactions
being hedged.
Business Segment Information: Information concerning
business segment and geographic data is in Management's
Discussion and Analysis.
- ------------------------------------------------------------------------------
2. ACQUISITIONS All of the following acquisitions have been accounted
for as purchases and, accordingly, the respective purchase
prices have been allocated to the respective assets and
liabilities based upon their estimated fair values as of
the acquisition date. Operating results of businesses
acquired have been included in the Consolidated Statements
of Income from the respective acquisition dates forward.
Fiscal 1996: The company acquired the following
businesses for a total of $193.4 million, including notes
to sellers of $37.4 million. The preliminary allocations
of purchase price resulted in goodwill of $128.1 million
and other intangibles of $6.6 million, which will be
amortized on a straight-line basis over periods not
exceeding 40 years.
On March 28, 1996, the company acquired the Nature's
Recipe business, which markets a brand of premium
specialty pet foods.
On March 6, 1996, the company acquired Earth's Best,
Inc. of Boulder, Colorado, which produces a leading brand
of premium, organic baby foods and will complement the
company's range of infant cereals, juices and strained and
junior foods.
The company acquired a majority interest in PMV/Zabreh,
a producer of infant formulas and dairy products located
in Zabreh, Moravia, Czech Republic. PMV/Zabreh holds
leading market shares in both the Czech and Slovak
Republics for infant formula, sold through pharmacies
under the Sunar and Feminar brand names.
The company increased its investment to 97% of
Kecskemeti Konzervgyar RT, which produces jarred baby
foods and canned vegetable products in Kecskemet, Hungary.
Other small acquisitions were also made during Fiscal
1996, including Fattoria Scaldasole S.p.A., which is a
processor of organic foods in Italy; Alimentos Pilar S.A.
of Argentina, a leading producer of pet and animal feed;
the Craig's brand of jams and dressings in New Zealand;
the Mareblu brand of canned tuna, which is sold
exclusively in Italy; a majority interest in Indian
48
<PAGE>
Ocean Tuna Ltd., located in the Seychelles; and Britwest
Ltd., which markets single-serve condiments, beverages and
sauces in Britain and France.
Pro forma results of the company, assuming the Fiscal
1996 acquisitions had been made at the beginning of each
period presented, would not be materially different from
the results reported.
Fiscal 1995: On March 14, 1995, the company completed
the acquisition of the North American pet food businesses
of The Quaker Oats Company (the "Pet Food Business") for
approximately $725 million. Among the major brands of the
Pet Food Business are Kibbles'n Bits dry dog food; Cycle
canned and dry dog food; Gravy Train dry dog food (U.S.
only); Ken-L Ration canned dog food; and Snausages, Pup-
Peroni and Pounce pet treats. The acquisition has
significantly strengthened the company's presence in the
pet food industry. The funds used to acquire the Pet Food
Business were provided primarily through the issuance of
privately placed commercial paper.
The allocation of the purchase price has resulted in
goodwill of $532.5 million and other intangible assets of
$146.2 million. These items are being amortized on a
straight-line basis over periods not exceeding 40 years.
In 1995, in connection with the acquisition of the Pet
Food Business, the company had established certain opening
balance sheet accruals for employee severance and
relocation costs and facilities consolidation and closure
costs based upon management's preliminary assessment of
such actions to be undertaken. During 1996, management
finalized integration plans and made minor adjustments to
the opening balance sheet, while approximately $29 million
was spent against such accruals. Remaining accruals are
considered adequate for any severance, relocation or exit
costs associated with the acquisition.
The following pro forma information combines the
consolidated results of operations as if the acquisition
of the Pet Food Business had been consummated as of the
beginning of the periods presented, after including the
impact of certain adjustments. Adjustments include (i) the
amortization of goodwill and other intangibles; (ii)
interest expense related to the acquisition debt; (iii)
depreciation on the restated values of property, plant and
equipment; and (iv) the related income tax effects.
<TABLE>
<CAPTION>
(Unaudited)
---------------------------------------------------------
(Dollars in thousands,
except per share
amounts) 1995 1994
---------------------------------------------------------
<S> <C> <C>
Sales $ 8,502,405 $ 7,539,502
Net income $ 585,803 $ 595,389
Net income per share $ 1.57 $ 1.55
----------------------------------------------------------
</TABLE>
During 1995, the company also acquired the following
other businesses (the "other 1995 acquisitions").
On December 2, 1994, the company acquired The All
American Gourmet Company for a purchase price of
approximately $200 million. The All American Gourmet
Company produces The Budget Gourmet brand of frozen meals
and side dishes and was formerly a part of Kraft General
Foods, Inc.
On September 30, 1994, the company acquired the Family
Products Division of Glaxo India, Ltd. for a purchase
price of approximately $65 million. The Family Products
Division, based in Bombay, India, produces a wide range of
nutritional drinks, baby food and other consumer products.
On July 22, 1994, the company acquired the Farley's
infant foods and adult nutrition business from The Boots
Company PLC of Nottingham, England for a total purchase
price of approximately $140 million. Farley's product
offerings include a wide range of infant feeding products,
from formulas to post-weaning biscuits, cereals and dry
meals.
49
<PAGE>
On May 16, 1994, the company acquired the Borden
Foodservice Group, a unit of Borden, Inc. The group's
product range includes a single-serve line of condiments.
Other acquisitions during 1995 included Dega, a
foodservice products company located in Italy.
The allocation of the purchase prices of the other 1995
acquisitions (excluding the Pet Food Business) has
resulted in goodwill of $142.0 million and other
intangible assets of $168.3 million, which will be
amortized on a straight-line basis over periods not
exceeding 40 years.
On an unaudited pro forma basis, the sales of the
company, as if the acquisition of the Pet Food Business
and the other 1995 acquisitions were made as of the
beginning of 1995 and 1994, are $8.7 billion and $8.2
billion, respectively. The results of operations would not
be materially different from those reported.
Pro forma results are not necessarily indicative of what
actually would have occurred if the acquisitions had been
in effect for the entire periods presented. In addition,
they are not intended to be a projection of future results
and do not reflect any synergies that might be achieved
from combined operations.
The company had established opening balance sheet
accruals for the other 1995 acquisitions for employee
severance and relocation costs and facilities
consolidation and closure costs based upon management's
preliminary assessment of such actions to be undertaken.
During 1996, accruals for exit costs were reduced by $23
million, resulting in a corresponding reduction to
goodwill. This was primarily attributable to not pursuing
a course of action that was anticipated at the acquisition
date. Also during 1996, approximately $15 million was
spent against the accruals established for employee
severance and relocation costs, and exit costs. Remaining
accruals are considered adequate for any severance,
relocation or exit costs associated with the other 1995
acquisitions.
Fiscal 1994: In 1994, the company purchased the Moore's
and Domani product lines from The Clorox Company of
Oakland, California for approximately $90 million. The
acquisition resulted in goodwill of approximately $53
million, which is being amortized over a period of 40
years.
Pro forma results of the company, assuming the Fiscal
1994 acquisition had been made at the beginning of 1994,
would not be materially different from the results
reported.
- ------------------------------------------------------------------------------
3. DIVESTITURES During each of the three years in the period ended May
1, 1996, the company sold several non-strategic
businesses. Pro forma results of the company, assuming all
of the divestitures had been made at the beginning of each
period presented, would not be materially different from
the results reported.
Fiscal 1996 divestitures include: an overseas sweetener
business, the Weight Watchers Magazine and two regional
dry pet food product lines. (See Note 12 to the
Consolidated Financial Statements.)
In Fiscal 1994, the company sold its Near East specialty
rice business to Golden Grain Company, a subsidiary of The
Quaker Oats Company, for approximately $80 million. The
sale included trademarks, inventory and fixed assets,
including Near East's Leominster, Massachusetts plant.
Also in Fiscal 1994, the company sold its confectionery
business of Heinz Italia S.p.A. to Hershey Foods
Corporation for approximately $133 million. The
divestiture included brand names, inventory and fixed
assets. The pretax gain on these divestitures totaled
$127.0 million, or $0.16 per share.
50
<PAGE>
- ------------------------------------------------------------------------------
4. INCOME TAXES The following table summarizes the provision for U.S.
federal and U.S. possessions, state and foreign taxes on
income.
<TABLE>
<CAPTION>
(Dollars in thousands) 1996 1995 1994
----------------------------------------------------------------------
<S> <C> <C> <C>
Current:
U.S. federal and U.S.
possessions $ 106,848 $ 114,819 $ 65,242
State 11,475 19,106 22,093
Foreign 110,784 78,753 125,304
----------------------------------------------------------------------
229,107 212,678 212,639
----------------------------------------------------------------------
Deferred:
U.S. federal and U.S.
possessions 87,239 47,676 88,989
State 10,408 6,897 (2,635)
Foreign 37,588 79,731 20,449
----------------------------------------------------------------------
135,235 134,304 106,803
----------------------------------------------------------------------
Total tax provision $ 364,342 $ 346,982 $ 319,442
----------------------------------------------------------------------
</TABLE>
The tax benefit resulting from adjustments to the
beginning-of-the-year valuation allowance, due to a change
in circumstances, to recognize the realizability of
deferred tax assets in future years totaled $12.5 million
in 1996, $3.1 million in 1995 and $57.3 million in 1994.
The 1996 tax provision was reduced by $24.9 million due to
the recognition of foreign tax losses and was increased by
$31.2 million due to charges related to the repatriation
of foreign earnings. In 1994, changes in U.S. tax law that
increased the U.S. statutory tax rate from 34% to 35% and
provided for the deductibility of certain purchased
intangibles did not have a material effect on the
company's results of operations. Tax expense resulting
from allocating certain tax benefits directly to
additional capital totaled $41.7 million in 1996.
The components of income before income taxes consist of
the following:
<TABLE>
<CAPTION>
(Dollars in thousands) 1996 1995 1994
----------------------------------------------------------------------
<S> <C> <C> <C>
----------------------------------------------------------------------
Domestic $ 500,034 $ 495,159 $ 418,395
Foreign 523,627 442,848 503,991
----------------------------------------------------------------------
$ 1,023,661 $ 938,007 $ 922,386
----------------------------------------------------------------------
</TABLE>
The differences between the U.S. federal statutory tax
rate and the company's consolidated effective tax rate are
as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------------------------------------------------------------------
<S> <C> <C> <C>
U.S. federal statutory
tax rate 35.0% 35.0% 35.0%
Tax on income of foreign
subsidiaries 0.5 0.9 2.9
State income taxes (net
of federal benefit) 1.8 2.1 1.4
Net valuation allowance (1.3) 2.2 (6.1)
Tax credits (0.2) (2.7) -
Earnings repatriation 3.0 1.6 1.2
Recognition of foreign
tax losses (2.4) (0.1) 0.1
Other (0.8) (2.0) 0.1
----------------------------------------------------------------------
Effective tax rate 35.6% 37.0% 34.6%
----------------------------------------------------------------------
</TABLE>
51
<PAGE>
The deferred tax (assets) and deferred tax liabilities
recorded on the balance sheets as of May 1, 1996 and May
3, 1995 are as follows:
<TABLE>
<CAPTION>
(Dollars in thousands) 1996 1995
<S> <C> <C>
----------------------------------------------------------------------
Depreciation/amortization $ 420,179 $ 355,874
Benefit plans 69,040 55,877
Other 133,673 117,249
----------------------------------------------------------------------
622,892 529,000
----------------------------------------------------------------------
Asset revaluations - (35,125)
Provision for estimated
expenses (45,910) (55,921)
Operating loss carryforwards (55,717) (35,079)
Benefit plans (122,448) (101,042)
Tax credit carryforwards (52,924) (51,207)
Other (142,609) (113,869)
----------------------------------------------------------------------
(419,608) (392,243)
----------------------------------------------------------------------
Valuation allowance 35,594 49,487
----------------------------------------------------------------------
Net deferred tax liabilities $ 238,878 $ 186,244
----------------------------------------------------------------------
</TABLE>
At the end of 1996, net operating loss carryforwards
totaled $137.5 million. Of that amount, $88.4 million
expire between 1997 and 2010; the other $49.1 million do
not expire. Foreign tax credit carryforwards total $52.9
million and expire through 2001.
The company's consolidated United States income tax
returns have been audited by the Internal Revenue Service
for all years through 1991.
Undistributed earnings of foreign subsidiaries
considered to be reinvested permanently amounted to $1.52
billion at May 1, 1996.
The net change in the valuation allowance for deferred
tax assets was a decrease of $13.9 million.
- ------------------------------------------------------------------------------
5. DEBT
<TABLE>
<CAPTION>
Short-Term (Dollars in thousands) 1996 1995
----------------------------------------------------------------------
<S> <C> <C>
Commercial paper $ 685,067 $ 662,802
Bank and other borrowings 309,519 355,552
----------------------------------------------------------------------
$ 994,586 $ 1,018,354
----------------------------------------------------------------------
</TABLE>
On September 5, 1995, the company amended the line of
credit agreements which support its domestic commercial
paper programs, reducing availability and extending
maturity dates. Total availability under the credit
agreements is $2.0 billion, compared to $2.3 billion under
the Fiscal 1995 agreements. Total domestic commercial
paper had a weighted average interest rate during 1996 of
5.8% and at year-end of 5.4%. The weighted average
interest rate during 1995 was 5.3% and at year-end was
6.1%.
The $1.5 billion of short-term credit lines that were
set to expire in September 1995 were reduced to $1.2
billion and extended to September 1996. It is expected
that the company will extend the maturity date of these
lines prior to their expiration.
The maturity date of the remaining $800.0 million of
line of credit agreements was extended from September 1999
to September 2000. As of May 1, 1996, $800.0 million of
domestic commercial paper outstanding is classified as
long-term debt due to the long-term nature of the
supporting line of credit agreements. At May 3, 1995, a
similar amount of domestic commercial paper was classified
as long-term. As of May 1, 1996 and May 3, 1995, domestic
commercial paper of $450.0 million was privately placed.
52
<PAGE>
The company also maintains a commercial paper program in
Canada. Outstanding Canadian commercial paper, which is
classified as short-term debt, was $1.1 million as of May
1, 1996 and $45.1 million as of May 3, 1995. The weighted
average interest rate for Canadian commercial paper during
1996 was 6.1%, and at year-end was 5.2%. The weighted
average interest rate during 1995 was 6.6%, and at year-
end was 8.2%. The company had $639.7 million of other
foreign lines of credit available at year-end, principally
for overdraft protection.
Total short-term debt had a weighted average interest
rate during 1996 of 6.5% and at year-end of 6.2%. The
weighted average interest rate on short-term debt during
1995 was 6.1% and at year-end was 6.7%.
<TABLE>
<CAPTION>
Maturity
Long-Term (Dollars Range of (Fiscal
in thousands) Interest Year) 1996 1995
-------------------------------------------------------------------------
<S> <C> <C> <C> <C>
United States
Dollars:
Commercial paper Variable 2001 $ 800,000 $ 800,000
Senior unsecured
notes 5.50-6.88% 1998-2003 749,532 749,386
Eurodollar bonds 7.50-8.00 1997-2000 628,119 629,834
Revenue bonds 5.63-11.75 1997-2003 10,781 10,814
Promissory notes 5.69-10.00 1997-2005 60,154 27,579
Other 8.10 1997 6,797 7,527
-------------------------------------------------------------------------
2,255,383 2,225,140
-------------------------------------------------------------------------
Foreign Currencies
(U.S. Dollar
Equivalents):
Promissory notes:
Pounds sterling 8.85% 1997-2006 51,100 65,781
Italian lire 4.90-16.25 1997-2004 34,487 27,673
Other 4.51-14.90 1997-2005 28,272 64,128
-------------------------------------------------------------------------
113,859 157,582
-------------------------------------------------------------------------
Total long-term debt 2,369,242 2,382,722
Less portion due
within one year 87,583 55,937
-------------------------------------------------------------------------
$ 2,281,659 $ 2,326,785
-------------------------------------------------------------------------
</TABLE>
The amount of long-term debt that matures in each of the
four years succeeding 1997 is: $580.7 million in 1998,
$26.8 million in 1999, $580.0 million in 2000 and $815.4
million in 2001.
On January 5, 1995, the company issued $300.0 million of
three-year 8.0% notes in the international capital
markets. The proceeds from the notes were utilized to
repay domestic commercial paper. The company entered into
an interest rate swap agreement that effectively converted
the fixed interest rate associated with the notes to a
variable rate based on LIBOR. Due to favorable market
conditions, the company terminated the interest rate swap
agreement and is amortizing the resulting gain over the
remaining life of the notes, producing an effective
borrowing rate of 7.3%.
On April 26, 1995, the company issued $250.0 million of
five-year 7.5% notes in the international capital markets.
The proceeds from these notes were used to repay a portion
of the privately placed commercial paper borrowings
incurred in connection with the acquisition of the Pet
Food Business.
In 1993, the company's United Kingdom affiliate
privately placed with various banks Pds125.0 million
($197.0 million) aggregate principal of 8.85% notes due
during 2013. In April 1993, an affiliated company paid
Pds70.6 million ($111.3 million) for an interest in the
notes. The notes are shown in the balance sheet as a net
amount outstanding of Pds33.2 million ($50.2 million),
which will be fully amortized in four years. The effective
interest rate was 8.3% at May 1, 1996 and May 3, 1995.
53
<PAGE>
- ------------------------------------------------------------------------------
6. SHAREHOLDERS'
EQUITY Capital Stock: On September 12, 1995, the company's
Board of Directors authorized a three-for-two common stock
split, effective October 3, 1995. There was no adjustment
in the stock's par value or the total number of authorized
common shares. All common share and per share amounts
reflect the three-for-two common stock split.
Shareholders' equity has been restated to give retroactive
recognition to the stock split for all periods presented
by reclassifying from additional capital to common stock
the par value of the additional shares arising from the
split.
The preferred stock outstanding is convertible at a rate
of one share of preferred stock into 13.5 shares of common
stock which reflects the three-for-two stock split. The
company can redeem the stock at $28.50 per share.
On May 1, 1996, there were authorized, but unissued,
2,200,000 shares of third cumulative preferred stock for
which the series had not been designated.
Employee Stock Ownership Plan (ESOP): The company
established an ESOP in 1990 to replace in full or in part
the company's cash-matching contributions to the H.J.
Heinz Company Employees Retirement and Savings Plan, a 401
(k) plan for salaried employees. Matching contributions to
the 401(k) plan are based on a percentage of the
participants' contributions, subject to certain
limitations.
To finance the plan, the ESOP borrowed $50.0 million
directly from the company in 1990. The loan is in the form
of a 15-year variable-rate interest-bearing note (an
average of 5.5%, 5.6% and 4.2% for 1996, 1995 and 1994,
respectively) and is included in the company's
Consolidated Balance Sheets as unearned compensation. The
proceeds of the note were used to purchase 2,366,862
shares of treasury stock from the company at approximately
$21.13 per share.
The stock held by the ESOP is released for allocation to
the participants' accounts over the term of the loan as
company contributions to the ESOP are made. The company
contributions are reported as compensation and interest
expense. Compensation expense related to the ESOP for
1996, 1995 and 1994 was $2.3 million, $3.7 million and
$3.3 million, respectively. Interest expense was $1.5
million, $1.9 million and $1.7 million for 1996, 1995 and
1994, respectively. The company's contributions to the
ESOP and the dividends on the company stock held by the
ESOP are used to repay loan interest and principal.
The dividends on the company stock held by the ESOP were
$2.1 million, $2.5 million and $1.9 million in 1996, 1995
and 1994, respectively.
The ESOP shares outstanding at May 1, 1996 were as
follows: unallocated 958,141; committed-to-be-released
29,553; and allocated 1,036,904. Shares held by the ESOP
are considered outstanding for purposes of calculating the
company's net income per share.
Cumulative Translation Adjustments: Changes in the
cumulative translation component of shareholders' equity
result principally from translation of financial
statements of foreign subsidiaries into U.S. dollars. The
reduction in shareholders' equity related to the
translation component decreased $1.4 million in 1996,
decreased $107.0 million in 1995 and increased $70.7
million in 1994.
54
<PAGE>
Unfunded Pension Obligation: An adjustment for unfunded
foreign pension obligations in excess of unamortized prior
service costs was recorded, net of tax, as a reduction in
shareholders' equity. (See Note 9 to the Consolidated
Financial Statements.)
<TABLE>
<CAPTION>
Cumulative
Preferred Stock Common Stock
-------------- --------------------------------------------------------------
Third, $1.70
First Series Additional
$10 Par Issued In Treasury Capital
- -------------------------------------------------------------------------------------------------------------------------------
(Amounts in thousands) Amount Amount Shares Amount Shares Amount
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance April 28, 1993 $ 438 $ 107,774 431,096 $ 1,046,905 49,554 $ 134,384
Reacquired - - - 222,582 9,713 -
Conversion of preferred
into common stock (40) - - (985) (54) (945)
Stock options exercised - - - (27,605) (1,581) 267*
Other, net - - - (1,720) (92) 549
- -------------------------------------------------------------------------------------------------------------------------------
Balance April 27, 1994 $ 398 $ 107,774 431,096 $ 1,239,177 57,540 $ 134,255
Reacquired - - - 273,671 11,456 -
Conversion of preferred
into common stock (40) - - (976) (54) (937)
Stock options exercised,
net of shares tendered
for payment - - - (53,305) (3,035) (12,264)*
Other, net - - - (7,843) (320) 237
- -------------------------------------------------------------------------------------------------------------------------------
Balance May 3, 1995 $ 358 $ 107,774 431,096 $ 1,450,724 65,587 $ 121,291
Reacquired - - - 155,200 4,806 -
Conversion of preferred
into common stock (87) - - (2,674) (117) (2,587)
Stock options exercised,
net of shares tendered
for payment - - - (101,751) (7,747) 35,797*
Other, net - - - (633) (31) 101
- -------------------------------------------------------------------------------------------------------------------------------
Balance May 1, 1996 $ 271 $ 107,774 431,096 $ 1,500,866 62,498 $ 154,602
- -------------------------------------------------------------------------------------------------------------------------------
Authorized Shares--May
1, 1996 27 600,000
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Includes income tax benefit resulting from exercised stock options.
- ------------------------------------------------------------------------------
7. SUPPLEMENTAL CASH
FLOWS INFORMATION
<TABLE>
<CAPTION>
(Dollars in thousands) 1996 1995 1994
------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Paid During The
Year For:
Interest $ 308,564 $ 210,610 $ 146,951
Income taxes 143,646 251,358 153,000
------------------------------------------------------------------------
Details of Acquisitions:
Fair value of assets $ 269,907 $ 1,359,028 $ 102,382
Liabilities* 113,697 179,942 6,697
------------------------------------------------------------------------
Cash paid 156,210 1,179,086 95,685
Less cash acquired 204 267 -
-------------------------------------------------------------------------
Net cash paid for
acquisitions $ 156,006 $ 1,178,819 $ 95,685
-------------------------------------------------------------------------
</TABLE>
*Includes notes to sellers of $37.4 million in 1996.
55
<PAGE>
- ------------------------------------------------------------------------------
8. EMPLOYEES' STOCK
OPTION PLANS AND
MANAGEMENT INCENTIVE
PLANS Under the company's stock option plans, officers and
other key employees may be granted options to purchase
shares of the company's common stock. The option price on
all outstanding options is equal to the fair market value
of the stock at the date of grant.
The shares authorized but not granted under the
company's stock option plans were 3,421,235 at May 1, 1996
and 5,459,835 at May 3, 1995.
Data regarding the company's stock option plans follows:
<TABLE>
<CAPTION>
Range of
Shares Option Price
--------------------------------------------------------------
<S> <C> <C>
Shares under option April
28, 1993 30,186,663 $ 5 7/8-28 7/8
Options granted 14,201,250 20 5/8-26 1/2
Options exercised (1,581,345) 6 3/8-25 1/8
Options surrendered (710,250) 23-28 7/8
--------------------------------------------------------------
Shares under option April
27, 1994 42,096,318 $ 5 7/8-28 7/8
Options granted 3,568,050 21 3/4-27 3/4
Options exercised (3,038,937) 5 7/8-25 7/8
Options surrendered (454,500) 21 3/4-28 7/8
--------------------------------------------------------------
Shares under option May
3, 1995 42,170,931 $ 9 1/4-28 7/8
Options granted 2,154,100 28 3/8-33
Options exercised (11,713,653) 9 1/4-28 7/8
Options surrendered (115,500) 22 1/8-27 3/4
--------------------------------------------------------------
Shares under option May
1, 1996 32,495,878 $ 12 5/8-33
--------------------------------------------------------------
Options exercisable at:
May 3, 1995 17,754,381
May 1, 1996 12,252,228
--------------------------------------------------------------
</TABLE>
Common stock reserved for options totaled 35,917,113
shares as of May 1, 1996 and 47,630,766 shares as of May
3, 1995.
On June 12, 1996, the Board of Directors adopted,
subject to the approval of the shareholders at the annual
meeting in September 1996, a new stock option plan
providing for the grant of up to 15.0 million shares of
common stock at any time over the next 10 years. In
general, the terms of the 1996 plan are similar to the
company's other stock option plans. Also on June 12, 1996,
options for 4.3 million shares were granted, of which 2.0
million were contingently granted under the 1996 plan.
The company's management incentive plan covers officers
and other key employees. Participants may elect to be paid
on a current or deferred basis. The aggregate amount of
all awards may not exceed certain limits in any year.
Compensation under the management incentive plans was
approximately $37 million in 1996, $24 million in 1995 and
$12 million in 1994.
- ------------------------------------------------------------------------------
9. RETIREMENT
PLANS The company maintains retirement plans for the majority
of its employees. Current defined benefit plans are
provided primarily for domestic union and foreign
employees. Benefits are based on years of service and
compensation or stated amounts for each year of service.
Plan assets are primarily invested in equities and fixed
income securities. The company's funding policy for
domestic defined benefit plans is to contribute annually
not less than the ERISA minimum funding standards nor more
than the maximum amount which can be deducted for federal
income tax purposes. Generally, foreign defined benefit
plans are funded in amounts sufficient to comply with
local regulations and ensure adequate funds to pay
benefits to retirees as they become due.
56
<PAGE>
Effective in 1993, the company discontinued future
benefit accruals under the defined benefit plans for
domestic non-union hourly and salaried employees and
expanded its defined contribution plans for these same
employees.
The company maintains defined contribution plans for the
majority of its domestic non-union hourly and salaried
employees. Defined contribution benefits are provided
through company contributions that are a percentage of the
participant's pay based on age, with the contribution rate
increasing with age, and matching contributions based on a
percentage of the participant's contributions to the 401
(k) portion of the plan. (The company's matching
contributions for salaried employees are provided under
the ESOP. See Note 6 to the Consolidated Financial
Statements.) In addition, certain non-union hourly
employees receive supplemental contributions, which are
paid at the discretion of the company.
Total pension cost consisted of the following:
<TABLE>
<CAPTION>
(Dollars in thousands) 1996 1995 1994
-----------------------------------------------------------------------
<S> <C> <C> <C>
Defined Benefit Plans:
Benefits earned during
the year $ 13,675 $ 14,648 $ 15,215
Interest cost on
projected benefit
obligation 74,623 66,734 66,706
Actual return on plan
assets (200,592) (26,254) (98,673)
Net amortization and
deferral 117,461 (56,285) 25,028
-----------------------------------------------------------------------
5,167 (1,157) 8,276
Defined contribution
plans (excluding the
ESOP) 25,946 17,222 16,493
-----------------------------------------------------------------------
Total pension cost $ 31,113 $ 16,065 $ 24,769
-----------------------------------------------------------------------
</TABLE>
The following table sets forth the combined funded
status of the company's principal defined benefit plans at
May 1, 1996 and May 3, 1995.
<TABLE>
<CAPTION>
Plans for Which Plans for Which
Assets Exceed Accumulated Benefits
Accumulated Benefits Exceed Assets
- ------------------------------------------------------------------------------
(Dollars in thousands) 1996 1995 1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Actuarial present
value of:
Accumulated benefit
obligation,
primarily vested $ 737,026 $ 774,830 $ 187,275 $ 84,510
Additional
obligation for
projected
compensation
increases 26,725 29,070 27,896 19,683
- ------------------------------------------------------------------------------
Projected benefit
obligation 763,751 803,900 215,171 104,193
Plan assets, at fair
value 962,510 920,591 138,505 48,548
- ------------------------------------------------------------------------------
Projected benefit
obligation less than
(in excess of)
assets 198,759 116,691 (76,666) (55,645)
Unamortized prior
service cost 71,824 75,380 7,735 2,473
Unamortized actuarial
(gains) losses, net (60,439) 47,947 75,944 41,806
Unamortized net
(assets) liabilities
at date of adoption (23,366) (34,145) (1,310) 2,722
Additional minimum
liability - - (54,472) (4,827)
- ------------------------------------------------------------------------------
Prepaid (accrued)
pension costs $ 186,778 $ 205,873 $ (48,769) $ (13,471)
- ------------------------------------------------------------------------------
</TABLE>
The 1996 adjustment for unfunded foreign pension
obligations in excess of the unamortized prior service
costs was recorded, net of tax, as a reduction in
shareholders' equity of $32.6 million. The remaining
portion of the unfunded obligation was recorded as other
long-term assets and deferred taxes in the amounts of $2.8
million and $19.1 million, respectively.
57
<PAGE>
The weighted average rates used for the years ended May
1, 1996, May 3, 1995 and April 27, 1994 in determining the
net pension costs and projected benefit obligations for
defined benefit plans were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------------------------------------------------------------------------
<S> <C> <C> <C>
Expected rate of return
on plan assets 9.4% 10.0% 10.0%
Discount rate 8.4% 8.7% 8.3%
Compensation increase
rate 5.3% 5.2% 4.8%
------------------------------------------------------------------------
</TABLE>
Assumptions for foreign defined benefit plans are
developed on a basis consistent with those for U.S. plans,
adjusted for prevailing economic conditions.
- ------------------------------------------------------------------------------
10. POSTRETIREMENT
BENEFITS OTHER THAN
PENSIONS AND OTHER
POSTEMPLOYMENT
BENEFITS The company and certain of its subsidiaries provide
health care and life insurance benefits for retired
employees and their eligible dependents. Certain of the
company's U.S. and Canadian employees may become eligible
for such benefits. In general, postretirement medical
coverage is provided for eligible non-union hourly and
salaried employees with at least 10 years of service
rendered after the age of 45 and certain eligible union
employees who retire with an immediate pension benefit.
The company currently does not fund these benefit
arrangements and may modify plan provisions or terminate
plans at its discretion.
Effective January 1, 1994, certain changes were made to
postretirement medical benefits offered to U.S. salaried
and non-union hourly employees who retire after May 1,
1994. Those retirees were required to share in the cost of
providing these benefits at percentages increasing from
20% in 1994 to 100% in 1998. The resulting curtailment
gain was immaterial. Effective May 1, 1996, the retiree
cost-sharing rate will be held at 50%.
Net postretirement costs consisted of the following:
<TABLE>
<CAPTION>
(Dollars in thousands) 1996 1995 1994
----------------------------------------------------------------------
<S> <C> <C> <C>
Postretirement benefits
earned during the year $ 2,736 $ 2,700 $ 6,512
Interest cost on
accumulated
postretirement benefit
obligation 13,350 13,249 15,740
Net amortization and
deferral (6,583) (5,165) (2,986)
----------------------------------------------------------------------
Net postretirement
benefit costs $ 9,503 $ 10,784 $ 19,266
----------------------------------------------------------------------
</TABLE>
58
<PAGE>
The following table sets forth the combined status of
the company's postretirement benefit plans at May 1, 1996
and May 3, 1995.
<TABLE>
<CAPTION>
(Dollars in thousands) 1996 1995
-------------------------------------------------------------------
<S> <C> <C>
Accumulated postretirement
benefit obligation:
Retirees and spouses $ 109,006 $ 121,380
Employees currently
eligible to retire 21,756 17,614
Employees not yet eligible
to retire 31,899 36,763
-------------------------------------------------------------------
Total accumulated
postretirement benefit
obligation 162,661 175,757
Unamortized prior service
cost 21,380 38,510
Unrecognized net gain 34,953 15,406
-------------------------------------------------------------------
Accrued postretirement
benefit obligation 218,994 229,673
Current portion, included in
other accrued liabilities 9,000 9,000
-------------------------------------------------------------------
Non-pension postretirement
benefits $ 209,994 $ 220,673
-------------------------------------------------------------------
</TABLE>
The weighted average discount rate used in the
calculation of the accumulated postretirement benefit
obligation and the net postretirement benefit cost was
8.1% in 1996 and 8.4% in 1995. The assumed annual
composite rate of increase in the per capita cost of
company-provided health care benefits begins at 9.9% for
1997, gradually decreases to 5.6% by 2007, and remains at
that level thereafter. A 1% increase in these health care
cost trend rates would cause the accumulated
postretirement obligation to increase by $20.5 million,
and the aggregate of the service and interest components
of 1996 net postretirement benefit costs to increase by
$2.8 million.
In 1995, the company adopted FAS No. 112, "Employers'
Accounting for Postemployment Benefits." This statement
requires recognition of benefits provided by an employer
to former or inactive employees after employment but
before retirement. The impact of the adoption of this
standard did not have a material impact on the company's
financial position or results of operations.
- ------------------------------------------------------------------------------
11. FINANCIAL
INSTRUMENTS Interest Rate Swap Agreements: As of May 1, 1996 and May
3, 1995, the notional values and unrealized gains or
losses related to such agreements held by the company were
not material.
Foreign Currency Contracts: As of May 1, 1996 and May 3,
1995, the company held currency swap contracts with an
aggregate notional amount of approximately $400 million
and $102 million, respectively. These contracts have
maturity dates extending from 1997 through 2002. The
company also had separate contracts to purchase certain
foreign currencies as of May 1, 1996 and May 3, 1995
totaling $444.8 million and $258.9 million, respectively,
and to sell certain foreign currencies totaling $66.5
million and $69.6 million, respectively, most of which
mature within one year of the respective fiscal year-end.
Net unrealized gains and losses associated with the
company's foreign currency contracts as of May 1, 1996 and
May 3, 1995 were not material.
Commodity Contracts: As of May 1, 1996 and May 3, 1995,
the notional values and unrealized gains or losses related
to commodity contracts held by the company were not
material.
Fair Value of Financial Instruments: The company's
significant financial instruments include cash and cash
equivalents, short- and long-term investments, short- and
long-term debt, interest rate swap agreements, currency
exchange agreements and guarantees.
59
<PAGE>
In evaluating the fair value of significant financial
instruments, the company generally uses quoted market
prices of the same or similar instruments or calculates an
estimated fair value on a discounted cash flow basis using
the rates available for instruments with the same
remaining maturities. As of May 1, 1996 and May 3, 1995,
the fair value of financial instruments held by the
company approximated the recorded value.
Effective April 28, 1994, the company adopted FAS No.
115, "Accounting for Certain Investments in Debt and
Equity Securities." FAS No. 115 requires that the carrying
value of certain investments be adjusted to their fair
value. The adoption of FAS No. 115 had no effect on the
company's financial position or results of operations. The
company's investments are considered to be "available-for-
sale" securities and are principally debt securities
issued by foreign governments.
Concentrations of Credit Risk: Counterparties to
currency exchange and interest rate derivatives consist of
large major international financial institutions. The
company continually monitors its positions and the credit
ratings of the counterparties involved and, by policy,
limits the amount of credit exposure to any one party.
While the company may be exposed to potential losses due
to the credit risk of non-performance by these
counterparties, losses are not anticipated. Concentrations
of credit risk with respect to accounts receivable are
limited due to the large number of customers, generally
short payment terms, and their dispersion across
geographic areas.
- ------------------------------------------------------------------------------
12. QUARTERLY
RESULTS (UNAUDITED)
<TABLE>
<CAPTION>
1996
- ----------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands,
except per share data) First Second Third Fourth Total
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales $ 2,094,293 $ 2,288,277 $ 2,193,138 $ 2,536,557 $ 9,112,265
Gross profit 774,308 822,931 812,308 927,361 3,336,908
Net income 174,469 158,167 156,484 170,199 659,319
Per Common Share Amounts:
Net income $ 0.46 $ 0.42 $ 0.42 $ 0.45 $ 1.75
Dividends 0.24 0.26 1/2 0.26 1/2 0.26 1/2 1.03 1/2
<CAPTION>
1995
- ---------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands,
except per share data) First Second Third Fourth Total
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales $ 1,736,098 $ 1,975,381 $ 1,953,855 $ 2,421,460 $ 8,086,794
Gross profit 634,648 705,756 721,451 905,342 2,967,197
Net income 154,716 139,592 138,267 158,450 591,025
Per Common Share Amounts:
Net income $ 0.41 $ 0.37 $ 0.38 $ 0.43 $ 1.59
Dividends 0.22 0.24 0.24 0.24 0.94
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Fourth-quarter 1996 results include gains related to the
sale of the Weight Watchers Magazine ($0.02 per share) and
the sale of two regional dry pet food product lines ($0.02
per share) and a charge for restructuring costs at certain
overseas affiliates ($0.01 per share).
Fourth-quarter 1996 earnings also benefited from a lower
effective tax rate resulting from the recognition of tax
losses overseas and increased profits from operations in
lower tax rate jurisdictions ($0.04 per share). (See Note
4 to the Consolidated Financial Statements.)
Fourth-quarter 1995 results contain an additional week
of activity due to a 53-week fiscal year.
60
<PAGE>
- ------------------------------------------------------------------------------
13. COMMITMENTS AND
CONTINGENCIES Legal Matters: On December 31, 1992, a food wholesale
distributor filed suit against the company and its
principal competitors in the U.S. baby food industry.
Subsequent to that date, several similar lawsuits were
filed in the same court and have been consolidated into a
class action suit. The complaints, each of which seeks an
injunction and unspecified treble money damages, allege a
conspiracy to fix, maintain and stabilize the prices of
baby food. Related suits have also been filed in Alabama
and California state courts, seeking to represent a class
of indirect purchasers of baby food in the respective
states. The defendants have filed a motion for summary
judgment to which the plaintiffs have filed a response.
The company believes all of the suits are without merit
and will defend itself vigorously against them. Certain
other claims have been filed against the company or its
subsidiaries and have not been finally adjudicated. The
above-mentioned suits and claims, when finally concluded
and determined, in the opinion of management, based upon
the information that it presently possesses, will not have
a material adverse effect on the company's consolidated
financial position or results of operations.
Lease Commitments: Operating lease rentals for
warehouse, production and office facilities and equipment
amounted to approximately $87.1 million in 1996, $89.5
million in 1995 and $94.0 million in 1994. Future lease
payments for non-cancellable operating leases as of May 1,
1996 totaled $261.0 million (1997-$55.3 million, 1998-
$48.8 million, 1999-$38.9 million, 2000-$32.3 million,
2001-$23.6 million and thereafter-$62.1 million).
- ------------------------------------------------------------------------------
14. ADVERTISING
COSTS Advertising costs for fiscal years 1996, 1995 and 1994
were $415.7 million, $338.6 million and $341.7 million,
respectively.
61
<PAGE>
RESPONSIBILITY STATEMENTS
- ------------------------------------------------------------------------------
RESPONSIBILITY FOR FINANCIAL STATEMENTS
Management of H.J. Heinz Company is responsible for the preparation of the
financial statements and other information included in this annual report. The
financial statements have been prepared in conformity with generally accepted
accounting principles, incorporating management's best estimates and
judgments, where applicable.
Management believes that the company's internal control systems provide
reasonable assurance that assets are safeguarded, transactions are recorded
and reported appropriately, and policies are followed. The concept of
reasonable assurance recognizes that the cost of a control procedure should
not exceed the expected benefits. Management believes that its systems provide
this appropriate balance. An important element of the company's control
systems is the ongoing program to promote control consciousness throughout the
organization. Management's commitment to this program is emphasized through
written policies and procedures (including a code of conduct), an effective
internal audit function and a qualified financial staff.
The company engages independent public accountants who are responsible for
performing an independent audit of the financial statements. Their report,
which appears herein, is based on obtaining an understanding of the company's
accounting systems and procedures and testing them as they deem necessary.
The company's Audit Committee is composed entirely of outside directors. The
Audit Committee meets regularly, and when appropriate separately, with the
independent public accountants, the internal auditors and financial management
to review the work of each and to satisfy itself that each is discharging its
responsibilities properly. Both the independent public accountants and the
internal auditors have unrestricted access to the Audit Committee.
- ------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders of H.J. Heinz Company:
We have audited the accompanying Consolidated Balance Sheets of H.J. Heinz
Company and Subsidiaries at May 1, 1996 and May 3, 1995, and the related
Consolidated Statements of Income, Retained Earnings and Cash Flows for each
of the three years in the period ended May 1, 1996. These financial statements
are the responsibility of the company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of H.J. Heinz
Company and Subsidiaries at May 1, 1996 and May 3, 1995, and the consolidated
results of their operations and their cash flows for each of the three years
in the period ended May 1, 1996, in conformity with generally accepted
accounting principles.
/s/ Coopers & Lybrand L.L.P.
600 Grant Street
Pittsburgh, Pennsylvania
June 18, 1996
62
<PAGE>
EXHIBIT 21
H. J. HEINZ COMPANY AND SUBSIDIARIES
SUBSIDIARIES OF THE REGISTRANT
Following are the subsidiairies of H.J. Heinz Company (the "Company"), other
than those which if considered in the aggregate as a single subsidiary would
not constitute a significant subsidiary, and the state or country in which
each subsidiary was incorporated or organized. The accounts of each of the
listed subsidiaries are a part of the Company's consolidated financial
statements.
<TABLE>
<CAPTION>
Subsidiary State or Country
---------- ----------------
<S> <C>
Alimentos Heinz, C.A. Venezuela
Alimentos Pilar S.A. Argentina
The All American Gourmet Company State of Delaware
Crestar Food Products, Inc. State of Delaware
Earth's Best, Inc. State of Delaware
Ets. Paul Paulet France
Gaines Pet Food Corp. State of Delaware
Heinz Bakery Products, Inc. State of Delaware
Heinz Iberica S.A. Spain
Heinz India Private Ltd. India
Heinz Italia, S.p.A. Italy
Heinz Japan Ltd. Japan
Heinz South Africa (Pty) Limited South Africa
Heinz-UFE Ltd. People's Republic of China
Heinz Win Chance Ltd. Thailand
H.J. Heinz (Botswana Proprietary) Ltd. Botswana
H.J. Heinz B.V. Netherlands
H.J. Heinz Company Australia Limited Australia
H.J. Heinz Company of Canada Ltd. Canada
H.J. Heinz Company Limited United Kingdom
H.J. Heinz Credit Company State of Delaware
Olivine Industries (Private) Limited Zimbabwe
Ore-Ida Foods, Inc. State of Delaware
Portion Pac, Inc. State of Ohio
Pro Pastries Inc. Canada
Seoul-Heinz Ltd. Republic of Korea
Star-Kist Foods, Inc. State of California
Heinz-Wattie Ltd. New Zealand
Weight Watchers Gourmet Food Company State of Delaware
Weight Watchers International, Inc. Commonwealth of Virginia
</TABLE>
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Anthony J. F. O'Reilly, David R. Williams
and Lawrence J. McCabe, and each of them, such person's true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for such person and in such person's name, place and stead, in any and all
capacities, to sign H. J. Heinz Company's Annual Report on Form 10-K for the
fiscal year ended May 1, 1996, and to sign any and all amendments to such Annual
Report, and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done,
as fully to all intents and purposes as such person might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and agents or
any of them, or such persons' or person's substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
This Power of Attorney has been signed below as of the 10th day of
July, 1996 by the following persons in the capacities indicated.
Signature Title
--------- -----
/s/ Anthony J. F. O'Reilly Chairman of the Board and Chief
- ---------------------------------- Executive Officer and Director
Anthony J. F. O'Reilly (Principal Executive Officer)
/s/ David R. Williams Executive Vice President - Finance
- ----------------------------------- and Chief Financial Officer and
David R. Williams Director (Principal Financial
Officer)
<PAGE>
/s/ Lawrence J. McCabe Senior Vice President -
- ----------------------------------- General Counsel and Director
Lawrence J. McCabe
/s/ William P. Snyder III Director
- -----------------------------------
William P. Snyder III
/s/ Joseph J. Bogdanovich Director
- -----------------------------------
Joseph J. Bogdanovich
/s/ Herman J. Schmidt Director
- -----------------------------------
Herman J. Schmidt
/s/ Albert Lippert Director
- -----------------------------------
Albert Lippert
/s/ Eleanor B. Sheldon Director
- -----------------------------------
Eleanor B. Sheldon
/s/ Richard M. Cyert Director
- -----------------------------------
Richard M. Cyert
/s/ Samuel C. Johnson Director
- -----------------------------------
Samuel C. Johnson
/s/ David W. Sculley Director
- -----------------------------------
David W. Sculley
<PAGE>
/s/ Donald R. Keough Director
- -----------------------------------
Donald R. Keough
/s/ S. Donald Wiley Director
- -----------------------------------
S. Donald Wiley
/s/ Luigi Ribolla Director
- -----------------------------------
Luigi Ribolla
/s/ Nicholas F. Brady Director
- -----------------------------------
Nicholas F. Brady
/s/ William R. Johnson Director
- -----------------------------------
William R. Johnson
/s/ William C. Springer Director
- -----------------------------------
William C. Springer
/s/ Edith E. Holiday Director
- -----------------------------------
Edith E. Holiday
/s/ Thomas S. Foley Director
- -----------------------------------
Thomas S. Foley
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-K
FOR THE FISCAL YEAR ENDED MAY 1, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAY-01-1996
<PERIOD-START> MAY-04-1995
<PERIOD-END> MAY-01-1996
<EXCHANGE-RATE> 1
<CASH> 90,064
<SECURITIES> 18,316
<RECEIVABLES> 1,207,874
<ALLOWANCES> 17,298
<INVENTORY> 1,493,963
<CURRENT-ASSETS> 3,046,692
<PP&E> 4,220,044
<DEPRECIATION> 1,603,216
<TOTAL-ASSETS> 8,623,691
<CURRENT-LIABILITIES> 2,715,122
<BONDS> 2,281,659
0
271
<COMMON> 107,774
<OTHER-SE> 2,598,712
<TOTAL-LIABILITY-AND-EQUITY> 8,623,691
<SALES> 9,112,265
<TOTAL-REVENUES> 9,112,265
<CGS> 5,775,357
<TOTAL-COSTS> 5,775,357
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 277,411
<INCOME-PRETAX> 1,023,661
<INCOME-TAX> 364,342
<INCOME-CONTINUING> 659,319
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 659,319
<EPS-PRIMARY> 1.75
<EPS-DILUTED> 1.74
<FN>
THE APPROPRIATE AMOUNTS HAVE BEEN ADJUSTED TO REFLECT THE THREE-FOR-TWO STOCK
SPLIT, WHICH WAS EFFECTIVE OCTOBER 3, 1995.
</FN>
</TABLE>
