0000950132-95-000252.txt : 19950802
0000950132-95-000252.hdr.sgml : 19950802
ACCESSION NUMBER: 0000950132-95-000252
CONFORMED SUBMISSION TYPE: 10-K405
PUBLIC DOCUMENT COUNT: 7
CONFORMED PERIOD OF REPORT: 19950503
FILED AS OF DATE: 19950801
SROS: NYSE
SROS: PSE
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: HEINZ H J CO
CENTRAL INDEX KEY: 0000046640
STANDARD INDUSTRIAL CLASSIFICATION: CANNED, FROZEN & PRESERVED FRUIT, VEG & FOOD SPECIALTIES [2030]
IRS NUMBER: 250542520
STATE OF INCORPORATION: PA
FISCAL YEAR END: 0430
FILING VALUES:
FORM TYPE: 10-K405
SEC ACT: 1934 Act
SEC FILE NUMBER: 001-03385
FILM NUMBER: 95557850
BUSINESS ADDRESS:
STREET 1: 600 GRANT ST
CITY: PITTSBURGH
STATE: PA
ZIP: 15219
BUSINESS PHONE: 4124565700
MAIL ADDRESS:
STREET 2: P O BOX 57
CITY: PITTSBURGH
STATE: PA
ZIP: 15230
10-K405
1
HEINZ FORM 10-K
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 3, 1995
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 (Zip Code)
executive offices)
412-456-5700
(Registrant's telephone number)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
Name of each exchange
Title of each class on which registered
------------------- ---------------------
Common Stock, par value $.25 per share New York Stock Exchange;
Pacific Stock Exchange
Third Cumulative Preferred Stock,
$1.70 First Series, par value
$10 per share New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
None.
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
As of June 30, 1995 the aggregate market value of the Registrant's voting
stock held by non-affiliates of the Registrant was approximately
$10,078,192,181.25.
The number of shares of the Registrant's Common Stock, par value $.25 per
share, outstanding as of June 30, 1995, was 246,148,828 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Registrant's Annual Report to Shareholders for the fiscal year
ended May 3, 1995, 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 1995 Annual Meeting of
Shareholders are incorporated into Part III, Items 10, 11, 12 and 13.
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, tuna and other seafood products, baby food, frozen potato products,
pet food, lower-calorie products (frozen entrees, frozen desserts, frozen
breakfasts, dairy and other products), soup (canned and frozen),
sauces/pastes, condiments and pickles, beans, coated products, pasta, bakery
products, chicken, frozen pizza and pizza components, full calorie frozen
dinners and entrees, vegetables (frozen and canned), ice cream and ice cream
novelties, edible oils, vinegar, margarine/shortening, 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.
1995 1994 1993
---- ---- ----
Ketchup, sauces and other condiments....................... 21% 19% 18%
Tuna and other seafood products............................ 9 10 10
Baby food.................................................. 9 9 10
All other classes of products, none of which accounts
for 10% or more of consolidated sales..................... 61 62 62
--- --- ---
100% 100% 100%
=== === ===
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
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 and "Rosetto" and
"Domani" for frozen pasta products, all of which are marketed in the United
States. "9 Lives" is used for cat foods, "Kibbles N' Bits", "Ken-L-Ration" and
"Reward" for dog food, "Jerky Treats", "Meaty Bones", "Snausages" and "Pup-
Peroni" for dog snacks, all of which are marketed in the United States and
Canada. "Amore" and "Kozy Kitten" is used for 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 "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 and
"Tegel" for poultry products, 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, 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. "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.
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
3
1996 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 3, 1995, approximately
42,200 persons around the world.
Financial segment information by major geographic area for the most recent
three fiscal years is set forth on page 36 of the Company's Annual Report to
Shareholders for the fiscal year ended May 3, 1995. 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.
ITEM 2. PROPERTIES.
The Company has 45 food processing plants in the United States and its
possessions, of which 39 are owned and six are leased, as well as 50 food
processing plants in foreign countries, of which 47 are owned and three are
leased, including ten in New Zealand, six in Canada, four in the United
Kingdom, four in Italy, three in Australia, three in Spain, two in Greece, two
in Portugal, two in Zimbabwe, one in Botswana, one in France, one in Ireland,
one in The Netherlands, one in Venezuela, one in Japan, one in the People's
Republic of China, one in Ghana, one in the Republic of Korea, one in
Thailand, one in Ecuador, one in India, one in Hungary and one in Russia. The
Company also leases one can-making factory in the United States. 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.
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 April 27, 1994, see Note 14 to the Consolidated Financial
Statements on page 55 of the Company's Annual Report to Shareholders for the
fiscal year ended May 3, 1995, which is incorporated herein by reference. The
Company continues to believe that all of the suits and claims are without
merit and is defending itself vigorously against them.
As previously reported in the Company's Form 10-Q for the three month period
ended July 27, 1994, Mayaguez Water Treatment Company, Inc. ("MWTC"), an
indirectly 70% owned subsidiary of the Company, had been advised that the
Puerto Rico Environmental Quality Board ("EQB") was contemplating initiating
proceedings against MWTC which could have resulted in fines being assessed in
excess of $100,000 as a consequence of violations of an administrative order
relating to MWTC's NPDES permit at its Mayaguez, Puerto Rico facility. The EQB
has not initiated proceedings to date. A Puerto Rican environmental group,
however, filed a lawsuit in the U.S. District Court for the District of Puerto
Rico (Mayaguezanos por la Salud y el Ambiente, Inc. v. Mayaguez Water
Treatment Company, Inc.; Star-Kist Caribe, Inc.; Bumble Bee International
Inc.) in November, 1994 against MWTC and its shareholders, Star-Kist Caribe, a
wholly-owned subsidiary of the Company, and Bumble Bee International. The
complaint alleges that MWTC failed to comply with its NPDES permit and failed
to submit the compliance plan requested by the U.S. Environmental Protection
Agency in an administrative order against MWTC and that the shareholders of
MWTC are jointly liable with MWTC for such violations. Plaintiffs are
requesting an injunction ordering MWTC to cease violating its NPDES permit;
civil penalties for MWTC's violations which may exceed $100,000; and
plaintiff's costs. Discovery in this matter has commenced. Although the EQB
and the U.S. Environmental Protection Agency each have the right to join the
lawsuit which could result in a fine being assessed in excess of $100,000, to
date, neither agency has joined.
4
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company has not submitted any matters to a vote of security holders
since the last annual meeting of shareholders on September 13, 1994.
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 12, 1995.
Positions and Offices Held with the Company and
Age (as of Principal Occupations or
Name September 12, 1995) Employment During Past Five Years
---- ------------------- ---------------------------------
Anthony J. F. O'Reilly 59 Chairman of the Board since March 11, 1987 and
President and Chief Executive Officer since July 1,
1979.
Joseph J. Bogdanovich 83 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.
David W. Sculley 49 Senior Vice President in charge of Weight Watchers
International, Inc. since June 1, 1989, Weight
Watchers Food Company since July 1, 1991, and Heinz
Bakery Products Division and Ore-Ida Foods, Inc.
since January 1, 1992; 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.
Lawrence J. McCabe 60 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 R. Williams 52 Senior Vice President-Finance and Chief Financial
Officer since August 1, 1992 and since October 12,
1994, in charge of all Heinz affiliates and
development activities in India, Pakistan and
southern Africa; 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.
Luigi Ribolla 58 Senior Vice President 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; Director of Heinz
Mediterranean Area from 1988 to July 31, 1992.
William R. Johnson 46 Senior Vice President in charge of Star-Kist Foods,
Inc. and Heinz operations in the Asia Pacific area
since September 8, 1993; President and Chief
Executive Officer of Star-Kist Foods, Inc. since
May 1, 1992 and President and Chief Executive
Officer of Heinz Pet Products Company since
November 1, 1988.
William C. Springer 55 Senior Vice President in charge of Heinz North
America, Heinz Service Company and Heinz operations
in Latin America since September 8, 1993; 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.
5
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 on page 35
under the caption "Stock Market Information" and on page 55 in Note 13,
"Quarterly Results (Unaudited)," of the Company's Annual Report to
Shareholders for the fiscal year ended May 3, 1995. 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 1991 through
1995. All amounts are in thousands except per share data.
Fiscal year ended
------------------------------------------------------
May 3, April 27, April 28, April 29, May 1,
1995 1994 1993 1992 1991
(53 Weeks) (52 Weeks) (52 Weeks) (52 Weeks) (52 Weeks)
---------- ---------- ---------- ---------- ----------
Sales................... $8,086,794 $7,046,738 $7,103,374 $6,581,867 $6,647,118
Interest expense........ 210,585 149,243 146,491 134,948 137,592
Income before cumulative
effect of
accounting change...... 591,025 602,944 529,943 638,295 567,999
Net income.............. 591,025 602,944 396,313 638,295 567,999
Income before cumulative
effect of
accounting change per
common share........... 2.38 2.35 2.04 2.40 2.13
Net income per common
share................... 2.38 2.35 1.53 2.40 2.13
Short-term debt and
current portion
of long-term debt...... 1,074,291 439,701 1,604,355 1,724,095 509,757
Long-term debt,
exclusive of
current portion........ 2,326,785 1,727,002 1,009,381 178,388 716,937
Total assets............ 8,247,188 6,381,146 6,821,321 5,931,901 4,935,382
Cash dividends per
common share............ 1.41 1.29 1.17 1.05 .93
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 Notes 2 and 6 to the Consolidated
Financial Statements, beginning on pages 43 and 47, respectively, of the
Company's Annual Report to Shareholders for the fiscal year ended May 3, 1995.
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 44
of the Company's Annual Report to Shareholders for the fiscal year ended May
3, 1995.
During 1993, the Company adopted the provisions of FAS No. 106 and elected
immediate recognition of the cumulative effect. See Note 11 to the
Consolidated Financial Statements on pages 52 and 53 of the Company's Annual
Report to Shareholders for the fiscal year ended May 3, 1995.
Net income and net income per share for 1993 includes restructuring charges.
See Note 4 to the Consolidated Financial Statements on page 45 of the
Company's Annual Report to Shareholders for the fiscal year ended May 3, 1995.
In 1992, restructuring charges of $88.3 million on a pretax basis ($0.20 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.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
This information is set forth in the Management's Discussion and Analysis
section on pages 28 through 36 of the Company's Annual Report to Shareholders
for the fiscal year ended May 3, 1995. Such information is incorporated herein
by reference.
6
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Consolidated Balance Sheets of the Company and its subsidiaries as of
May 3, 1995 and April 27, 1994 and the related Consolidated Statements of
Income, Retained Earnings and Cash Flows for the fiscal years ended May 3,
1995, April 27, 1994 and April 28, 1993, together with the related Notes to
Consolidated Financial Statements, included in the Company's Annual Report to
Shareholders for the fiscal year ended May 3, 1995, 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--Director and Officer Securities Reports" in the
Company's definitive Proxy Statement in connection with the Annual Meeting of
Shareholders to be held September 12, 1995. 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 12,
1995. 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 12, 1995. 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 12,
1995. Such information is incorporated herein by reference.
7
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 3, 1995 are
incorporated herein by reference:
Consolidated Balance Sheets as of May 3, 1995 and April 27, 1994
Consolidated Statements of Income for the fiscal years ended May 3,
1995, April 27, 1994 and April 28, 1993
Consolidated Statements of Retained Earnings for the fiscal years
ended May 3, 1995, April 27, 1994 and April 28, 1993
Consolidated Statements of Cash Flows for the fiscal years ended May
3, 1995, April 27, 1994 and April 28, 1993
Notes to Consolidated Financial Statements
Independent Accountants' Report of Coopers & Lybrand L.L.P. dated
June 19, 1995, on the Company's consolidated financial statements
for the fiscal years ended May 3, 1995, April 27, 1994 and April 28,
1993
(2) The following report and schedule is filed herewith as a part hereof:
Independent Accountants' Report of Coopers & Lybrand L.L.P. dated
June 19, 1995, on the Company's consolidated financial statement
schedule filed as a part hereof for the fiscal years ended May 3,
1995, April 27, 1994 and April 28, 1993.
Schedule II (Valuation and Qualifying Accounts and Reserves) for the
three fiscal years ended May 3, 1995, April 27, 1994 and April 28,
1993.
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.
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.
8
(c) Management contracts and compensatory plans:
(i) 1986 Deferred Compensation Program for H. J. Heinz Company
and affiliated companies is incorporated herein by reference
to Exhibit 10(p) to the Company's Annual Report on Form 10-K
for the fiscal year ended April 30, 1986
(ii) H. J. Heinz Company's 1982 Stock Option Plan, as amended, 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, 1990
(iii) 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
(iv) 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
(v) H. J. Heinz Company's 1990 Stock Option Plan is incorporated
herein by reference to Appendix A to the Company's Definitive
Proxy Statement dated August 3, 1990
(vi) 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
(vii) 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
(viii) 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
(ix) 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
(d) Agreement for the Registration of Stock among H. J. Heinz Company
and Howard Heinz Endowment, Vira I. Heinz Endowment, Heinz Family
Foundation, H. John Heinz III Revocable Trust No. 1 and H. John
Heinz III Descendants' Trust (No. 1) dated June 22, 1995 is
incorporated herein by reference to Exhibit 10 to the Company's Form
8-K dated July 7, 1995.
11. Computation of net income per share.
13. Pages 28 through 56 of the H. J. Heinz Company Annual Report to
Shareholders for the fiscal year ended May 3, 1995, 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) A report on Form 8-K (as amended by Form 8-K/A filed May 30, 1995) was filed
with the Securities and Exchange Commission on March 29, 1995 reporting the
completion by the Company of the acquisition of all of the North American
pet food businesses of the Quaker Oats Company. A report on Form 8-K was
filed with the Securities and Exchange Commission on July 10, 1995 reporting
that on June 23, 1995, the Howard Heinz Endowment, the Vira I. Heinz
Endowment, the Heinz Family Foundation and certain Heinz family trusts
announced their intention to diversify their investment portfolios by
selling a portion of their common stock holdings in H. J. Heinz Company
through an underwritten secondary offering for up to an aggregate of
approximately 13.5 million shares. The offering will be made by means of a
prospectus only and is expected to occur in August 1995. H. J. Heinz Company
has agreed to file a registration statement with the Securities and Exchange
Commission to facilitate the offering.
9
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 31, 1995.
H. J. HEINZ COMPANY
(Registrant)
/s/ David R. Williams
By......................................
DAVID R. WILLIAMS
Senior 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 31, 1995.
Signature Capacity
--------- --------
/s/ Anthony J. F. O'Reilly Chairman of the Board,
............................. President and Chief
ANTHONY J. F. O'REILLY Executive Officer (Principal
Executive Officer)
/s/ David R. Williams Senior Vice President-Finance and Chief
............................. Financial Officer (Principal Financial
DAVID R. WILLIAMS 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
10
INDEPENDENT ACCOUNTANTS' REPORT
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 3, 1995 and appears on page 56 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 19, 1995
---------------
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, 2-
79306, 33-00390, 33-19639, 33-32563, 33-42015 and 33-55777) of our reports
dated June 19, 1995, on our audits of the consolidated financial statements
and financial statement schedules of H. J. Heinz Company and Subsidiaries as
of May 3, 1995 and April 27, 1994 and for the fiscal years ended May 3, 1995,
April 27, 1994 and April 28, 1993, which reports are included or incorporated
by reference in this Annual Report on Form 10-K.
Coopers & Lybrand L.L.P.
Pittsburgh, PA
July 31, 1995
11
SCHEDULE II
H. J. HEINZ COMPANY AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FISCAL YEARS ENDED MAY 3, 1995, APRIL 27, 1994 AND APRIL 28, 1993
(THOUSANDS OF DOLLARS)
Additions
-------------------
Balance at Charged to Charged Balance at
beginning costs and to other end of
Description of period expenses accounts Deductions period
----------- ---------- ---------- -------- ---------- ----------
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(2) $ 7,466
======== ======= ====== ======= ========
Goodwill............ $127,708 $33,970 $ -- $(2,115) $163,793
======== ======= ====== ======= ========
Other intangibles... $ 85,862 $31,441 $ -- $ (127) $117,430
======== ======= ====== ======= ========
Deferred tax assets
(3)................. $ 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
(4)................ $ 85,071 $ 4,655 $ -- $60,838 $ 28,888
======== ======= ====== ======= ========
Fiscal year ended April
28, 1993:
Reserves deducted in
the balance sheet
from the assets to
which they apply:
Receivables......... $ 15,390 $ 4,018 $1,976 $ 5,085(1) $ 16,299
======== ======= ====== ======= ========
Investments,
advances and other
assets............. $ 20,554 $ 298 $ -- $ 687 $ 20,165
======== ======= ====== ======= ========
Goodwill............ $ 88,892 $29,845 $ -- $ 3,106 $115,631
======== ======= ====== ======= ========
Other intangibles... $ 63,197 $16,382 $ -- $ 6,906(1) $ 72,673
======== ======= ====== ======= ========
Deferred tax assets
(5)................ $139,976 $ 5,025 $ -- $59,930 $ 85,071
======== ======= ====== ======= ========
Notes:
(1) Principally reserves on assets sold, written-off or reclassified.
(2) Represents amounts reclassified as a result of consolidation of certain
fishing vessel operations.
(3) 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 5 to the Consolidated Financial Statements on pages 45 and 46 of
the Company's Annual Report to Shareholders for the fiscal year ended May
3, 1995.
(4) 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 5 to the Consolidated Financial Statements on pages 45
and 46 of the Company's Annual Report to Shareholders for the fiscal year
ended May 3, 1995.
(5) The net change in the valuation allowance for deferred tax assets was a
decrease of $54.9 million. The decrease was primarily due to the
utilization of loss carryforwards ($5.3 million), amortization of asset
revaluations ($10.7 million) and recognition of the realizability of
certain other deferred tax assets in future years ($41.8 million). An
increase in the valuation allowance related to the deferred tax asset for
loss carryforwards ($5.0 million) partially offset the decrease. See Note
5 to the Consolidated Financial Statements on pages 45 and 46 of the
Company's Annual Report to Shareholders for the fiscal year ended May 3,
1995.
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.
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 is incorporated herein by reference to Exhibit
10(p) to the Company's Annual Report on Form 10-K for the fiscal
year ended April 30, 1986
(ii) H. J. Heinz Company's 1982 Stock Option Plan, as amended, 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, 1990
(iii) 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
(iv) 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
(v) H. J. Heinz Company's 1990 Stock Option Plan is incorporated herein
by reference to Appendix A to the Company's Definitive Proxy
Statement dated August 3, 1990
(vi) 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
(vii) 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
EXHIBIT
(viii) 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
(ix) 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
(d) Agreement for the Registration of Stock among H. J. Heinz Company and
Howard Heinz Endowment, Vira I. Heinz Endowment, Heinz Family Foundation,
H. John Heinz III Revocable Trust No. 1 and H. John Heinz III
Descendants' Trust (No. 1) dated June 22, 1995 is incorporated herein by
reference to Exhibit 10 to the Company's Form 8-K dated July 7, 1995.
11. Computation of net income per share.
13. Pages 28 through 56 of the H. J. Heinz Company Annual Report to
Shareholders for the fiscal year ended May 3, 1995, 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
EX-3
2
HEINZ BY-LAWS
Exhibit 3(ii)
BY-LAWS
OF
H. J. HEINZ COMPANY
(INCORPORATED UNDER THE LAWS OF PENNSYLVANIA)
[Logo of H. J. Heinz Company]
Approved by the Board of Directors: June 10, 1970
Adopted by the Shareholders: September 9, 1970
Amended by the Board of Directors: June 13, 1973, November 9, 1977,
June 13, 1979, July 11, 1979,
September 9, 1987, July 6, 1990 and October 12, 1994
Amended by the Shareholders: September 9, 1987
..........................................
..........................................
..........................................
..........................................
..........................................
..........................................
BY-LAWS OF H. J. HEINZ COMPANY
ARTICLE I--IDENTIFICATION
SECTION 1. Principal Office. The principal office of the Company shall be
at such place in the Commonwealth of Pennsylvania as the Board of Directors
shall by resolution from time to time designate.
SECTION 2. Seal. The Company shall have a corporate seal in such form as
the Board of Directors shall by resolution from time to time prescribe.
SECTION 3. Fiscal Year. The fiscal year shall end on the Wednesday nearest
to April 30 of each year and begin on the following day.
ARTICLE II--SHAREHOLDERS' MEETING
SECTION 1. Place of Meetings. Meetings of the shareholders of the Company
shall be held at the principal office of the Company or at such other place
within or without the Commonwealth of Pennsylvania as may be fixed by the Board
of Directors.
SECTION 2. Annual Meeting. The annual meeting of the shareholders shall be
held on the second Wednesday in September each year at two o'clock p.m., or on
such other day or at such other time as may be fixed by the Board of Directors.
The shareholders at the annual meeting shall: (i) elect a Board of Directors;
(ii) elect independent certified public accountants to examine the annual
financial statements of the Company and to report on such examination to the
shareholders; and (iii) transact such other business as may properly be brought
before such meeting.
> SECTION 3. Chairman of Meeting. All meetings of shareholders shall be
called to order and presided over the by Chairman of the Board or in his
absence, by the President, or in the absence of both, by the person designated
in writing by the Chairman or President.
SECTION 4. Determination of Record Dates. The Board of Directors shall fix
a time, not less than ten or more than seventy days, prior to the date of any
meeting of shareholders, as a record date for the determination of the
shareholders entitled to notice of and to vote at such meeting.
SECTION 5. Notice to Shareholders. Written notice of every meeting of the
shareholders shall be given by, or at the direction of, the person or persons
authorized to call the meeting, to each shareholder of record entitled to vote
at the meeting: (i) at least thirty days prior to the date fixed for the annual
meeting; (ii) at least ten days prior to the date fixed for any special meeting,
unless, in either case, a greater period of notice is required by law to be
given in advance of such particular meeting. Written notice shall be deemed to
be sufficient if given to the shareholder personally, or by sending a copy
thereof through the mail to his address appearing on the books of the Company,
or supplied by him to the Company for the purpose of notice. The notice required
by this By-Law shall specify the place, date and hour of the meeting, and in
case of a special meeting, the general nature of the business to be transacted.
ARTICLE III--DIRECTORS
SECTION 1. General Powers of Board of Directors. The business and affairs
of the Company shall be managed by its Board of Directors which is hereby
authorized and empowered to exercise all corporate powers of the Company.
SECTION 2. Qualification and Number. The Board of Directors shall have the
power to fix the number of directors and from time to time by proper resolution
to increase or decrease the number thereof without a vote of the shareholders
provided that the number so determined shall not be less than three.
---------
> Section amended by the Board of Directors on June 13, 1973 and June 13, 1979
1
SECTION 3. Election and Term. Except as provided in the Company's Restated
Articles of Incorporation as amended, the shareholders shall at each annual
meeting elect directors each of whom shall serve until the annual meeting of
shareholders next following his election and until his successor is elected and
shall qualify.
SECTION 4. Vacancies. Vacancies on the Board of Directors, including
vacancies from any increase in the number of directors, shall be filled by a
majority of the remaining members of the Board though less than a quorum, and
each person so elected shall be a director until his successor is elected by the
shareholders who may make such election at the next annual meeting of the
shareholders or at any special meeting to be called for that purpose and held
prior thereto.
SECTION 5. Nomination of Directors. Candidates for election to the Board of
Directors at an annual meeting of the shareholders shall be nominated at a
regular or special meeting of the Board held at least sixty days prior to such
annual meeting. Candidates for such election also may be nominated by notice in
writing setting forth the name and address of each candidate, signed by a
shareholder or shareholders and received by the Secretary of the Company at
least thirty days before such annual meeting. If any nominee shall be unwilling
or unable to serve as a director if elected, a substitute nominee shall be
designated by the Board or may be designated by the said shareholder or
shareholders, as the case may be, and announcement of such designation shall be
made at the meeting of the shareholders prior to the voting upon election of
directors.
SECTION 6. Organization Meeting of Board of Directors. The Board of
Directors shall without notice meet each year upon adjournment of the annual
meeting of the shareholders at the principal office of the Company, or at such
other time or place as shall be designated in a notice given to all nominees for
director, for the purposes of organization, fixing of times and places for
regular meetings of the Board for the ensuing year, election of officers and
consideration of any other business that may properly be brought before the
meeting.
SECTION 7. Regular Meetings. Regular meetings of the Board of Directors
shall be held at such times and places as shall be fixed at the organization
meeting of the Board or as may be otherwise determined by the Board.
> SECTION 8. Special Meetings. Special meetings of the Board of Directors may
be called by the Chairman of the Board, the President or the Secretary and shall
be called by the Secretary at the written request of any two directors.
[] SECTION 9. Notice of Regular and Special Meetings. No notice of a regular
meeting of the Board of Directors shall be necessary if the meeting is held at
the time and place fixed by the Board at its organization meeting or at the
immediately preceding Board meeting. Notice of any regular meeting to be held at
another time or place and of all special meetings of the Board, setting forth
the time and place of the meeting, and in the case of a special meeting the
purpose or purposes thereof, shall be given by letter or other writing deposited
in the United States mail not later than during the third day immediately
preceding the day for such meeting, or by telephone, telex, facsimile or other
oral, written or electronic means, received not later than during the day
immediately preceding the day for such meeting or such shorter period as the
person or persons calling such meeting may deem necessary or appropriate under
the circumstances.
SECTION 10. Quorum. A majority of the directors in office shall be
necessary to constitute a quorum for the transaction of business, and the acts
of the majority of the directors present at a meeting at which a quorum is
present shall be the acts of the Board of Directors. If at any meeting a quorum
shall not be present the meeting may adjourn from time to time until a quorum
shall be present.
SECTION 11. Written Consent. Any action which may be taken at a meeting of
the Board of Directors or at a meeting of the executive or other committee as
hereinafter provided may be taken without a meeting, if a consent or consents in
writing setting forth the action so taken shall be signed
---------
> Section amended by the Board of Directors on June 13, 1973 and June 13, 1979
[]Section amended by the Board of Directors on October 12, 1994.
2
by all of the directors or the members of the committee, as the case may be, and
shall be filed with the Secretary of the Company.
SECTION 12. Participation by Conference Telephone. One or more directors
may participate in a meeting of the Board of Directors or of a committee of the
Board as hereinafter provided for by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other.
> SECTION 13. Executive Committee. The Board of Directors may, by resolution
adopted by a majority of the whole Board, constitute, abolish or reconstitute an
Executive Committee. The Executive Committee shall be composed of such number of
members of the Board as the Board may determine, but in no event less than
three, and shall include the Chairman of the Board and the President. The other
members of the Executive Committee shall be appointed and may be removed by the
Board. The President shall act as Chairman of such Committee, and in his absence
the Committee shall select one of its members to act as Chairman.
The Chairman of the Committee shall have power to vote on all questions.
The members of the Committee shall hold office until the first meeting of the
Board of Directors after the next succeeding annual meeting of the shareholders
and until their successors are appointed.
The Board of Directors shall fill any vacancy in the Executive Committee,
and it shall be its duty to keep the membership of such Committee full.
The Executive Committee shall keep proper minutes and records of its
proceedings, and all actions of the Executive Committee shall be reported to the
Board of Directors at its meeting next succeeding such actions, and when the
Board is not in session the Executive Committee shall have all powers and rights
of the Board unless limited by a resolution of the Board.
A quorum of the Executive Committee shall consist of three of its members.
All questions shall be decided by the vote of the majority of the members of
such Committee present.
SECTION 14. Other Committees. The Board of Directors may, by resolution
adopted by a majority of the whole Board, designate one or more committees, each
committee to consist of three or more directors.
SECTION 15. Compensation of Officers and Assistant Officers. Unless
otherwise determined by resolution adopted by the majority of the entire Board
of Directors, the Chief Executive Officer of the Company or such officer as he
may designate shall have the authority to determine, fix and change the
compensation of all officers and assistant officers of the Company elected or
appointed by the Board.
ARTICLE IV--OFFICERS
> SECTION 1. Number and Election. The Board of Directors shall elect a
Chairman of the Board, a President, a Secretary and a Treasurer, and may elect
such other officers and assistant officers as the Board may deem appropriate.
SECTION 2. Term of Office. The term of office for all officers shall be
until the organization meeting of the Board of Directors following the next
annual meeting of shareholders or until their respective successors are elected
and shall qualify, but any officer may be removed from office, either with or
without cause, at any time by the affirmative vote of the majority of the
members of the Board then in office. A vacancy in any office arising from any
cause may be filled for the unexpired term by the Board.
<> SECTION 3. Chairman of the Board. The Chairman of the Board shall preside
at all meetings of the shareholders and of the Board of Directors at which he is
present. He shall be a member of the Executive Committee and may be a member of
the other committees of the Board.
---------
> Section amended by the Board of Directors on June 13, 1973 and June 13, 1979
<>Section amended by the Board of Directors on June 13, 1979
3
> SECTION 4. President. The President shall be the Chief Executive Officer
and shall have general supervision over the business and affairs of the Company.
In the absence of the Chairman, he shall have the powers of the Chairman of the
Board. In addition, he shall perform all duties as may be assigned to him by the
Board of Directors.
> SECTION 5. Secretary. The Secretary shall attend meetings of the
shareholders, the Board of Directors and the Executive Committee, shall keep
minutes thereof in suitable books, and shall send out all notices of meetings as
required by law or by these By-Laws. He shall, in general, perform all duties
incident to the office of the Secretary and perform such other duties as may be
assigned to him by the Board, the Chairman of the Board or the President.
> SECTION 6. Treasurer. The Treasurer shall have charge and custody of and be
responsible for all funds and deposit all sums in the name of the Company in
banks, trust companies or other depositories; he shall receive and give receipts
for money due and payable to the Company from any source whatsoever, and in
general shall perform all the duties incident to the office of the Treasurer and
such other duties as may be assigned to him by the Board of Directors, the
President or by any officer to whom the President has directed him to report.
> SECTION 7. Other Officers. The powers and duties of other officers shall be
such as may, from time to time, be prescribed by the Board of Directors, the
Chairman of the Board or the President.
> SECTION 8. Delegation of Duties of Officers. In case of the absence of any
officer of the Company or for any other reason that the Board of Directors may
deem sufficient, the Board, or in the absence of action by the Board, the
President, or in his absence, the Chairman of the Board, may delegate for the
time being the powers and duties of any officer to any other officer or to any
director.
ARTICLE V--EXECUTION OF WRITTEN INSTRUMENTS
> The Board of Directors shall, from time to time, designate the officers,
employees or agents of the Company who shall have power in its name to sign and
endorse checks and other negotiable instruments, and to borrow money for the
Company and in its name to make notes or other evidence of indebtedness. Any
officer so designated by the Board may further delegate his powers to the extent
provided in any resolution of the Board. Unless otherwise authorized by the
Board, all contracts, leases, deeds and deeds of trust, mortgages, powers of
attorney to transfer stock and all other documents requiring the seal of the
Company shall be executed for and on behalf of the Company by the Chairman of
the Board, the President or any Vice President, and shall be attested by the
Secretary or an Assistant Secretary.
ARTICLE VI--CERTIFICATES OF STOCK AND TRANSFER OF STOCK
> SECTION 1. Form of Share Certificates and Transfer. Share certificates
representing the capital stock of the Company shall be in such form as the Board
of Directors may from time to time determine. Each certificate shall be signed
by the Chairman of the Board, the President or one of the Vice Presidents or
other officer designated by the Board and shall be countersigned by the
Treasurer or an Assistant Treasurer and sealed with the seal of the Company. If
such certificates of stock are signed or countersigned by a corporate transfer
agent and a corporate registrar of the Company, such signature of the Chairman
of the Board, the President or other officer, and the countersignature of the
Treasurer or Assistant Treasurer, and such seal, or any of them, may be a
facsimile, engraved or printed.
SECTION 2. Transfer Agent and Registrar. The Board of Directors may appoint
an incorporated bank or trust company in the City of Pittsburgh and a similar
institution in the City of New York to act as transfer agents for the Company's
capital stock with such duties and powers as may be prescribed by the Board in
the resolutions appointing them; and an incorporated bank or trust company in
the City
---------
> Section amended by the Board of Directors on June 13, 1973 and June 13, 1979
4
of Pittsburgh and a similar institution in the City of New York to act as
registrars of the Company's capital stock. A share certificate of the Company
shall not be valid or binding unless countersigned by a transfer agent and
registered before issue by a registrar.
SECTION 3. Registered Shareholders. The Company shall be entitled to treat
the holder of record of any share or shares of stock as the holder in fact
thereof and accordingly shall not be bound to recognize any equitable or other
claim to or interest in such share on the part of any other person, whether or
not it shall have express or other notice thereof, save as expressly provided by
the laws of Pennsylvania.
<> SECTION 4. Lost Certificate. Any person claiming a certificate of stock to
be lost or destroyed shall make an affidavit or affirmation of that fact and
advertise the same in such manner as the Board of Directors may require, and
shall, if the directors so require, give the Company a bond of indemnity, in
form and with one or more sureties satisfactory to the Board, whereupon a new
certificate may be issued of the same tenor and for the same number of shares as
the one alleged to be lost or destroyed.
> SECTION 5. Determination of Shareholders Entitled to Dividends,
Distributions or Rights. The Board of Directors may fix a time not more than
fifty days prior to the date fixed for the payment of any dividend or
distribution or the date for the allotment of rights or the date when any change
or conversion or exchange of shares will be made or go into effect as a record
date for the determination of the shareholders entitled to receive payment of
any such dividend or distribution or to receive any such allotment or rights or
to exercise the rights in respect to any such change, conversion or exchange of
shares.
< ARTICLE VII--LIMITATION OF DIRECTOR LIABILITY
To the fullest extent that the laws of the Commonwealth of Pennsylvania, as
in effect on January 27, 1987 or as thereafter amended, permit elimination or
limitation of the liability of directors, no director of the Company shall be
personally liable for monetary damages as such for any action taken, or any
failure to take any action, as a director. This Article shall not apply to any
action filed prior to January 27, 1987, nor to any breach of performance of duty
or any failure of performance of duty by any director occurring prior to January
27, 1987. The provisions of this Article shall be deemed to be a contract with
each director of the Company who serves as such at any time while such
provisions are in effect, and each such director shall be deemed to be serving
as such in reliance on the provisions of this Article. This Article shall not be
amended, altered or repealed without the affirmative vote of the holders of at
least 80% of the voting power (without consideration of the rights of any class
of stock to elect directors by a separate class) of the then outstanding shares
of Capital stock of the Company entitled to vote in an annual election of
directors, voting together and not as separate classes, unless such amendment,
alteration or repeal is first recommended and approved by a majority of the
entire Board of Directors in which case only a majority shareholder vote shall
be required. Such affirmative vote shall be required notwithstanding the fact
that no vote is required, or that a lesser percentage may be specified, by law
or in any agreement with any national securities exchange or otherwise. Any
amendment to, alteration, or repeal or adoption of this Article which has the
effect of increasing director liability shall operate prospectively only and
shall not have any effect with respect to any action taken, or any failure to
act, by a director prior thereto.
ARTICLE VIII--ADDITIONAL INDEMNIFICATION PROVISIONS APPLICABLE TO
< PROCEEDINGS BASED ON ACTS OR OMISSIONS ON OR AFTER JANUARY 27, 1987
SECTION 1. Right of Indemnification. Except as prohibited by law, every
director and officer of the Company shall be entitled as of right to be
indemnified by the Company against reasonable expenses and any liability paid or
incurred by such person in connection with any actual, threatened or completed
claim, action, suit or proceeding, civil, criminal, administrative,
investigative or other,
---------
<>Section amended by the Board of Directors on July 11, 1979
> Section amended by the Board of Directors on November 9, 1977
< Article added by the Shareholders on September 9, 1987
5
whether brought by or in the right of the Company or otherwise, in which he or
she may be involved, as a party or otherwise, by reason of such person being or
having been a director or officer of the Company or by reason of the fact that
such person is or was serving at the request of the Company as a director,
officer, employee, fiduciary or other representative of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise
(such claim, action, suit or proceeding hereinafter being referred to as an
"action"); provided, however, that no such right of indemnification shall exist
with respect to an action brought by a director or officer against the Company
other than a suit for indemnification as provided in Section 3. Persons or
classes of persons who are not directors or officers of the Company may be
similarly indemnified in respect of service to the Company or to another such
enterprise at the request of the Company to the extent the Board of Directors at
any time denominates such person or such class of persons as entitled to the
benefits of this Article. As used herein, "expenses" shall include fees and
expenses of counsel selected by such person; and "liability" shall include
amounts of judgments, excise taxes, fines, penalties, and amounts paid in
settlement.
SECTION 2. Right to Advancement of Expenses. Indemnification under Section
1 shall include the right to have expenses incurred by such person in connection
with an action (other than an action brought by such person against the Company)
paid in advance by the Company prior to final disposition of such action,
subject to such conditions as may be prescribed by law or by a provision in the
Company's Restated Articles of Incorporation, these By-Laws, agreement or
otherwise to reimburse the Company in certain events.
SECTION 3. Right of Claimant to Bring Suit. If a claim under Section 1 or
Section 2 of this Article is not paid in full by the Company within thirty days
after a written claim has been received by the Company, the claimant may at any
time thereafter bring suit against the Company to recover the unpaid amount of
the claim, and, if successful in whole or in part, the claimant shall also be
entitled to be paid the expense of prosecuting such claim. It shall be a defense
to any such action that the conduct of the claimant was such that under
Pennsylvania law the Company would be prohibited from indemnifying the claimant
for the amount claimed, but the burden of proving such defense shall be on the
Company. Neither the failure of the Company (including its Board of Directors,
independent legal counsel and its shareholders) to have made a determination
prior to the commencement of such action that indemnification of the claimant is
proper in the circumstances because the conduct of the claimant was not such
that indemnification would be prohibited by law, nor an actual determination by
the Company (including its Board of Directors, independent legal counsel or its
shareholders) that the conduct of the claimant was such that indemnification
would be prohibited by law, shall be a defense to the action or create a
presumption that the conduct of the claimant was such that indemnification would
be prohibited by law. The only defense to any such action to receive payment of
expenses in advance under Section 2 of this Article shall be failure to make an
undertaking to reimburse if such undertaking is required by law or by a
provision in the Company's Restated Articles of Incorporation, these By-Laws,
agreement or otherwise.
SECTION 4. Insurance and Funding. The Company may purchase and maintain
insurance to protect itself and any person eligible to be indemnified hereunder
against any liability or expense asserted or incurred by such person in
connection with any action, whether or not the Company would have the power to
indemnify such person against such liability or expense by law or under the
provisions of this Article. The Company may create a trust fund, grant a
security interest, cause a letter of credit to be issued or use other means
(whether or not similar to the foregoing) to ensure the payment of such sums as
may become necessary to effect indemnification as provided herein.
SECTION 5. Non-Exclusivity, Nature and Extent of Rights. The rights of
indemnification and advancement of expenses provided for herein (i) shall not be
deemed exclusive of any other rights, whether now existing or hereafter created,
to which those seeking indemnification hereunder may be entitled under any
agreement, by-law or charter provision, vote of shareholders or directors or
otherwise, (ii) shall be deemed to create contractual rights in favor of persons
entitled to indemnification hereunder, (iii) shall continue as to persons who
have ceased to have the status pursuant to which they were entitled or were
denominated as entitled to indemnification hereunder and shall inure to the
benefit of the heirs and legal representatives of persons entitled to
indemnification and (iv) shall be
6
applicable to actions, suits or proceedings commenced after the adoption hereof,
whether arising from acts or omissions occurring before or after the adoption
hereof.
SECTION 6. Effective Date. This Article shall apply to every action other
than an action filed prior to January 27, 1987, except that it shall not apply
to the extent that Pennsylvania law prohibits its application to any breach of
performance of duty or any failure of performance of duty by a claimant
occurring prior to January 27, 1987.
SECTION 7. Indemnification Agreements. The Company may enter into
agreements with any director, officer or employee of the Company, which
agreements may grant rights to any person eligible to be indemnified hereunder
or create obligations of the Company in furtherance of, different from, or in
addition to, but not in limitation of, those provided in this Article, without
shareholder approval of any such agreement. Without limitation of the foregoing,
the Company may obligate itself (i) to maintain insurance on behalf of any
person eligible to be indemnified hereunder against certain expenses and
liabilities and (ii) to contribute to expenses and liabilities incurred by such
person in accordance with the application of relevant equitable considerations
to the relative benefits to, and the relative fault of, the Company.
SECTION 8. Partial Indemnification. If any person is entitled under any
provision of this Article to indemnification by the Company of a portion, but
not all, of the expenses or liability resulting from an action, the Company
shall nevertheless indemnify such person for the portion thereof to which he is
entitled.
SECTION 9. Severability. If any provision of this Article shall be held to
be invalid, illegal or unenforceable for any reason (i) such provision shall be
invalid, illegal or unenforceable only to the extent of such prohibition and the
validity, legality and enforceability of the remaining provisions of this
Article shall not in any way be affected or impaired thereby, and (ii) to the
fullest extent possible, the remaining provisions of this Article shall be
construed so as to give effect to the intent manifested by the provision held
invalid, illegal or unenforceable.
SECTION 10. Amendment, Alteration or Repeal. This Article may be amended,
altered or repealed at any time in the future by vote of the majority of the
entire Board of Directors without shareholder approval; provided that any
amendment, alteration or repeal, or adoption of any Article of the Restated
Articles of Incorporation or any By-Law of the Company, which has the effect of
limiting the rights granted under this Article, shall require the affirmative
vote of the holders of at least 80% of the voting power (without consideration
of the rights of any class of stock to elect directors by a separate class) of
the then outstanding shares of capital stock of the Company entitled to vote in
an annual election of directors, voting together and not as separate classes,
unless such amendment, alteration or repeal is first recommended and approved by
a majority of the entire Board of Directors in which case only a majority
shareholder vote shall be required. Such affirmative vote shall be required
notwithstanding the fact that no vote is required, or that a lesser percentage
may be specified, by law or in any agreement with any national securities
exchange or otherwise. Any amendment to, alteration or repeal of this Article,
or such other Article or other By-Law, which has the effect of limiting the
rights granted under this Article shall operate prospectively only, and shall
not limit in any way the indemnification provided for herein with respect to any
action taken, or failure to act, occurring prior thereto.
ARTICLE IX--INDEMNIFICATION OF DIRECTORS, OFFICERS AND OTHERS
SECTION 1. Indemnification for Actions, etc., Other Than By or In the Right
of the Company. The Company shall indemnify any person who was or is a party or
is threatened with being made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action, suit or proceeding by or in the right of
the Company) by reason of the fact that he is or was a director or officer of
the Company, or is or was serving at the request of the Company as a director,
officer or employee of another corporation, partnership, joint venture, trust or
other enterprise, against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding if he acted in good faith and in
a manner he reasonably believed to be in or not
7
opposed to the best interests of the Company and, with respect to any criminal
action or proceeding, had no reasonable cause to believe his conduct was
unlawful. The termination of any action, suit or proceeding by judgment, order,
settlement, conviction or upon a plea of nolo contendere or its equivalent,
shall not of itself create a presumption that the person did not act in good
faith and in a manner which he reasonably believed to be in or not opposed to
the best interests of the Company and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
SECTION 2. Indemnification for Actions, etc., By or In the Right of the
Company. The Company shall indemnify any person who was or is a party or is
threatened with being made a party to any threatened, pending or completed
action or suit by or in the right of the Company to procure a judgment in its
favor by reason of the fact that he is or was a director or officer of the
Company, or is or was serving at the request of the Company as a director,
officer or employee of another corporation, partnership, joint venture, trust or
other enterprise, against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection with the defense or settlement of such
action or suit if he acted in good faith and in a manner he reasonably believed
to be in, or not opposed to, the best interests of the Company and except that
no indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable for negligence or
misconduct in the performance of his duty to the Company unless and only to the
extent that the court or body in or before which such action, suit or proceeding
was finally brought shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the case, such
person is fairly and reasonably entitled to indemnification for such expenses
which the court of competent jurisdiction shall deem proper.
SECTION 3. Determination of Right to Indemnification. To the extent that a
director or officer of the Company has been successful on the merits or
otherwise in defense of any action, suit or proceeding referred to in Sections
(1) or (2) of this Article or in defense of any claim, issue or matter therein,
he shall be indemnified against expenses (including attorneys' fees) actually
and reasonably incurred by him in connection therewith.
Any indemnification under Sections (1) or (2) of this Article (unless
ordered by a court) shall be made by the Company only as authorized in the
specific case upon a determination that indemnification of a director or officer
is proper in the circumstances because he has met the applicable standard of
conduct set forth in this Article. Such determination shall be made:
(a) By the Board of Directors by a majority vote of a quorum
consisting of directors who were not parties to such action, suit or
proceeding, or
(b) If such a quorum is not obtainable, or, even if obtainable a
majority vote of a quorum of disinterested directors so directs, by
independent legal counsel in a written opinion, or
(c) By the shareholders.
SECTION 4. Payment of Expenses. Expenses incurred in defending a civil or
criminal action, suit or proceeding may be paid by the Company in advance of the
final disposition of such action, suit or proceeding as authorized in the manner
provided in Section 3 of this Article upon receipt of an undertaking by or on
behalf of the director or officer, to repay such amount unless it shall
ultimately be determined that he is entitled to be indemnified by the Company as
authorized in this Article.
SECTION 5. Indemnification of Managerial and Retired Employees. Each
employee of the Company acting in a managerial capacity (and each retired
employee who is or was, after retirement, a party to an agreement under which he
is or was obligated to render services to the Company or such other entity)
shall be reimbursed and indemnified in the same manner and to the same extent as
provided in this Article for a director or officer in connection with any
proceeding in which he may be involved or to which he may be a party by reason
of his being or having been such employee or a party to any such agreement or by
reason of any action alleged to have been taken or omitted by him in any such
capacity.
8
SECTION 6. Other Rights and Remedies. The indemnification provided by this
Article shall not be deemed exclusive of any other rights to which those seeking
indemnification may be entitled under any by-law, agreement, vote of
shareholders or disinterested directors or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director or
officer, and shall inure to the benefit of the heirs, executors and
administrators of such a person.
SECTION 7. Insurance. To the extent permitted by law, the Board of
Directors may at its discretion from time to time purchase and maintain
insurance on behalf of any person who is or was a director, officer or employee
of the Company or is or was serving at the request of the Company as a director,
officer or employee of another corporation, partnership, joint venture, trust or
other enterprise against any liability asserted against him and incurred by him
in any such capacity, or arising out of his status as such, whether or not the
Company would have power to indemnify him against such liability under the
provisions of this Article.
> SECTION 8. Applicability. The indemnification and reimbursement provided
under this Article shall continue to be provided to all persons described herein
unless such persons have received the benefits of indemnification under Article
VIII of these By-Laws.
ARTICLE X--NON-APPLICABILITY OF PROVISIONS
. OF PENNSYLVANIA ACT NO. 36 OF 1990
SECTION 1. Non-Applicability. The following provisions of Pennsylvania Act
No. 36 of 1990 shall not be applicable to the Company:
A. Subsections (d) through (f) of Section 511 of Title 15 of the
Pennsylvania Consolidated Statutes.
B. Subsections (e) through (g) of Section 1721 of Title 15 of the
Pennsylvania Consolidated Statutes.
C. Subchapter G of Chapter 25 of Title 15 of the Pennsylvania
Consolidated Statutes.
D. Subchapter H of Chapter 25 of Title 15 of the Pennsylvania
Consolidated Statutes.
SECTION 2. Expressed Intention. Nothing in the foregoing paragraphs of
Section 1 of this Article X (including, without limitation, paragraphs A and B
thereof) is intended to limit, or shall limit or be deemed to limit, the right,
power or discretion of the Board of Directors, or of any committee of the Board
of Directors, or of any individual director, in discharging the duties of their
respective positions, to consider to the extent, if any, they deem, appropriate:
(i) the effects of any action or proposed action (or of any omission to act)
upon any or all groups affected by such action (or omission to act), including
effects upon shareholders, employees, suppliers, customers and creditors of the
Company and upon communities in which offices or other establishments of the
Company are located; (ii) the short-term and/or long-term interests of the
Company, including benefits that may accrue or be expected to accrue to the
Company from its long-term or intermediate plans and strategies (and/or the
long-term or intermediate plans and strategies of one or more of its affiliates)
and the effect thereon of any action or proposed action (including, without
limitation, any proposed acquisition, divestiture or other transaction), and the
possibility that such short-term and/or long-term interests might be served by
the continued independence of the Company; (iii) the resources, intent and
conduct (past, stated and potential) of any person seeking to acquire control of
the Company or proposing any transaction with the Company; and (iv) all other
factors deemed pertinent by the Board of Directors or any such committee or
individual director.
---------
> Section added by the Board of Directors on September 9, 1987
. Article added by the Board of Directors on July 6, 1990
9
ARTICLE XI--BY-LAWS SUBJECT TO PROVISIONS
OF ARTICLES OF INCORPORATION
In case of any conflict between the provisions of these By-Laws and the
Company's Restated Articles of Incorporation as amended from time to time, the
provisions of the Articles of Incorporation shall control, and with respect to
any provisions required to be set forth in the By-Laws, the applicable
provisions of the Articles of Incorporation are and shall be incorporated herein
by reference and shall be deemed a part of these By-Laws.
<> ARTICLE XII--AMENDMENTS
Except as otherwise provided in Articles VII and VIII, these By-Laws may be
altered, amended, added to or repealed by the Board of Directors at any meeting
of the Board duly convened with or without notice of that purpose, subject to
the power of the shareholders to change such action.
---------
<> Article amended by the Board of Directors on September 9, 1987
10
CERTIFICATE
I hereby certify that the foregoing is a true and complete copy of the
By-Laws of H. J. HEINZ COMPANY, a Pennsylvania corporation, and that the same
are in full force and effect.
.................. .................................
Date Assistant Secretary
[CORPORATE SEAL]
11
EX-11
3
COMPUTATION OF EPS
EXHIBIT 11
H. J. HEINZ COMPANY AND SUBSIDIARIES
COMPUTATION OF NET INCOME PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Fiscal Year Ended
-----------------------------
May 3, April 27, April 28,
1995 1994 1993
--------- --------- ---------
Primary income per share:
Net income..................................... $ 591,025 $ 602,944 $ 396,313
Less-preferred dividends....................... 64 71 78
--------- --------- ---------
Net income applicable to common stock.......... $ 590,961 $ 602,873 $ 396,235
========= ========= =========
Average common shares outstanding and
common stock equivalents........................ 248,538 256,812 259,788
========= ========= =========
Net income per share--primary.................. $ 2.38 $ 2.35 $ 1.53
========= ========= =========
Fully diluted income per share:
Net income..................................... $ 591,025 $ 602,944 $ 396,313
========= ========= =========
Average common shares outstanding and
common stock equivalents...................... 248,538 256,812 259,788
Additional common shares assuming:
Conversion of $1.70 third cumulative
preferred stock............................. 341 418 461
Additional common shares assuming options
were exercised at the year-end market price. 1,000 86 578
--------- --------- ---------
249,879 257,316 260,827
========= ========= =========
Net income per share--fully diluted............ $ 2.37 $ 2.34 $ 1.52
========= ========= =========
EX-13
4
ANNUAL REPORT
EXHIBIT 13
MANAGEMENT'S DISCUSSION AND ANALYSIS
H.J. Heinz Company and Subsidiaries
------------------------------------------------------------------------------
H.J. Heinz Company's financial results for 1995
benefited from improved domestic and foreign sales
volume and implementation of cost reduction and
productivity enhancement activities. In order to
position itself for future growth, the company also
invested a record $1.2 billion in acquisitions that
strengthened its position in core businesses, extended
its geographic reach and created opportunities for
improved economies of scale.
In 1995, many of the company's core products, such as
Heinz ketchup, StarKist tuna, Ore-Ida frozen potatoes,
Heinz baby food and pet food showed significant volume
growth. Foodservice products also continued to exhibit
excellent volume growth.
The Weight Watchers businesses (meetings and food)
improved in 1995. Heinz U.K. continues to deal with
competitive pressures and a difficult trade environment,
which affected both sales volume and pricing.
------------------------------------------------------------------------------
RESULTS OF 1995 versus 1994: Sales for 1995 increased $1.04
OPERATIONS 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 baby food and
sauces/pastes.
Acquisitions increased sales $488.1 million, or 7%.
Acquisitions included: the North American pet food
businesses of The Quaker Oats Company (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 baby food, 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
represents 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.
In the United Kingdom, competitive pressures and a
difficult trade environment continued to affect both
sales volume and pricing. In addition, 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.
28
------------------------------------------------------------------------------
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 have been eliminated.
In 1995, the company initiated additional productivity
improvements for which a charge was recorded in
operating income. The current-year 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 Food business; non-cash
asset write-downs associated with the company's
distribution system and severance costs in Italy. The
effect of the current-year charge was immaterial.
Selling, general and administrative (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% a year ago. 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 a year ago. In 1994,
operating income included the gains 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 these gains, 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 last year, which
was affected by the Los Angeles earthquake, a severe
winter and an industry-wide decline in attendance.
Although the entire weight loss industry continues to
show weakness, the Weight Watchers meetings' market
share exceeds 50%. As a result of its improved cost
structure and established infrastructure, Weight
Watchers meeting operations are well positioned to grow
profitably in the current market environment and to take
advantage of any
29
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
H.J. Heinz Company and Subsidiaries
------------------------------------------------------------------------------
future increase in the percentage of dieters using
weight-loss services. Weight Watchers Food business
showed improved profitability mainly through
more targeted marketing, reduced administrative
expenditures and cost savings from productivity
enhancements.
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 5 to the Consolidated Financial Statements.) The
current-year effective tax rate of 37.0% is more
indicative of expected future rates.
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 $2.38 from $2.35. 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 gains of
$0.24 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 $0.22 per share. Excluding the
$0.24 per share gains from the sale of the confectionery
and specialty rice businesses, earnings per share
increased $0.27, 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.
1994 versus 1993: Sales for 1994 decreased $56.6
million, or 1%, to $7.05 billion from $7.10 billion in
1993. Divestitures and the effects of the stronger U.S.
dollar against most foreign currencies produced the
sales decrease, which was partially offset by price
increases and acquisitions. Volume remained flat.
For the third year in a row, unfavorable foreign
currency translation rates adversely impacted sales. The
negative sales impact of foreign currency translation
was $278.6 million, or 4%, the largest dollar decline in
the company's history. This resulted principally from an
unprecedented decline of the United Kingdom pound
sterling and the Italian lira against the U.S. dollar as
a result of these two countries leaving the European
Monetary System in Fiscal 1993.
Prices increased $134.1 million in 1994, or 2%,
principally in the U.S. Increases in StarKist tuna, Ore-
Ida frozen potatoes and Heinz grocery ketchup were
partially offset by declines in pet food. Overseas,
price increases occurred in several countries, notably
Italy, Zimbabwe and Venezuela.
Acquisitions, net of divestitures, increased sales
$89.1 million, or 1%. Acquisitions included the 1994
purchase of the Moore's and Domani product lines (coated
frozen foods and Italian frozen pastas) from The Clorox
Company of Oakland, California; and the purchases of
Wattie's Limited of New Zealand in October 1992 and
several domestic Weight Watchers franchises in 1993.
Divestitures included the confectionery business of
Heinz Italia, the Near East specialty rice business and
other smaller businesses, including the Chico-San rice
cake business.
Volume was flat year-on-year; increases at foreign
operations offset decreases at domestic operations.
Foreign volume increased in sauces/pastes, baby food and
Heinz beans. Foreign volume declines occurred
30
------------------------------------------------------------------------------
in condiments and soup. Domestically, volume decreased in
the Weight Watchers businesses (meetings and food), Ore-
Ida grocery frozen potatoes, Heinz grocery ketchup,
StarKist tuna and Heinz baby food. The volume decreases
were due in part to the strategy to "de-load" trade
inventories, implemented in 1994. Domestic volume
increases occurred in Ore-Ida foodservice potatoes, pet
food, Heinz foodservice ketchup and single-serve
condiments.
Gross profit increased $92.2 million in 1994 to $2.66
billion from $2.57 billion. Excluding the effect of the
1993 restructuring charges of $143.5 million, gross
profit declined $51.3 million due primarily to the sales
decline in the Weight Watchers businesses (meetings and
food), the trade "de-loading" strategy and foreign
exchange. This was partially offset by the effects of
acquisition and divestiture activities, reduced trade
promotions, lower costs associated with the
restructuring projects and operating improvements
resulting from the implementation of the restructuring
strategy. The ratio of gross profit to sales increased
to 37.8% from 36.2%. Excluding the effect of the
restructuring charges, the 1993 gross profit ratio was
38.2%.
SG&A expenses increased $11.7 million to $1.72 billion
from $1.71 billion, primarily due to increases in
consumer promotions as well as incremental selling and
distribution expenses resulting from the full-year
effect of the Wattie's Limited acquisition, partially
offset by a decrease in general and administrative
expenses. The decline in general and administrative
expenses was due to restructuring charges recorded in
1993, lower costs associated with the restructuring
projects and operating improvements resulting from the
implementation of the restructuring strategy.
Operating income increased $207.5 million in 1994 to
$1.07 billion from $860.9 million in 1993. The increase
in operating income was primarily due to the inclusion
of gains on the sale of the confectionery business of
Heinz Italia and the Near East specialty rice business
in 1994 ($127.0 million) and the restructuring charges
recorded in 1993 ($192.3 million). Adjusting for these
items, operating income declined $111.8 million, or 11%
(declined to 13% of sales from 15% of sales). This
decline was principally due to the decline in gross
profit and increase in SG&A expenses, as discussed
above.
Non-operating expenses totaled $146.0 million in 1994
compared to $145.1 million in 1993. Interest income
increased $7.3 million to $36.8 million from $29.5
million in the prior year due to higher invested cash
generated from recent divestitures. Interest expense
increased $2.8 million to $149.2 million in 1994 from
$146.5 million in 1993, primarily the result of the
additional interest associated with the $750 million of
debentures issued in the second and third quarters of
1993, partially offset by lower average short-term
borrowings. Offsetting this decrease in net interest
were lower foreign government grants in 1994.
The effective tax rate was 34.6% in 1994 and 26.0% in
1993. Both years' effective tax rates reflect tax
benefits from overseas operations ($57.3 million in 1994
and $41.8 million in 1993). The 1993 tax rate also
benefited from the recognition of foreign tax credits
associated with the company's overseas dividend strategy
($40.0 million). (See Note 5 to the Consolidated
Financial Statements.)
Net income increased $206.6 million, or 52%, to $602.9
million from $396.3 million in the prior year, and net
income per share increased to $2.35 from $1.53. The
increase in net income per share of 54% in 1994, versus
the 52% increase in net income, reflected the favorable
benefit of the company's share repurchase plan. The 1994
results included gains of $0.24 per share from the sale
of the confectionery business of Heinz Italia and the
sale of the Near East specialty rice business. In
addition, 1994 and
31
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
H.J. Heinz Company and Subsidiaries
------------------------------------------------------------------------------
1993 benefited from lower effective tax rates. The 1993
results included the effect of the adoption of FAS No.
106, "Employers' Accounting for Postretirement Benefits
Other Than Pensions" ($0.51 per share) and restructuring
charges ($0.45 per share).
The impact of fluctuating exchange rates for 1994
remained relatively consistent on a line-by-line basis
throughout the Consolidated Statement of Income.
------------------------------------------------------------------------------
LIQUIDITY AND Return on average shareholders' equity (ROE) was 24.6%
FINANCIAL POSITION in 1995, 25.9% in 1994 and 22.0% in 1993 (before the
cumulative effect of adopting FAS No. 106, "Employers'
Accounting for Postretirement Benefits Other Than
Pensions"). Pretax return on average invested capital
(ROIC) was 22.1% in 1995 compared to 22.7% in 1994 and
18.7% in 1993.
Cash provided by operating activities was $752.5
million in 1995, compared to $931.2 million in 1994. The
decrease in 1995 versus 1994 was the result of higher
taxes paid and higher operating working capital
requirements principally related to increased sales
levels.
In 1994, cash provided by operating activities
increased $519.3 million to $931.2 million, from $411.9
million in 1993. The increase was the result of lower
working capital requirements, resulting from trade "de-
loading," offset partially by expenditures for the
restructuring program.
Cash used for investing activities was $1.5 billion in
1995 versus $27.4 million in 1994. The increase in cash
used for investing activities was due primarily to
acquisitions totaling $1.2 billion. Acquisitions in 1995
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.; 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. Acquisitions in 1994 included
the Moore's and Domani product lines and Farex, a baby
food company in Australia. (See Note 2 to the
Consolidated Financial Statements.)
Capital expenditures totaled $341.8 million in 1995
and $275.1 million in 1994. Both years reflected
expenditures for productivity improvements and plant
expansions, principally at the company's Ore-Ida, United
Kingdom, StarKist Foods, Heinz U.S.A. and Wattie's
operations.
Purchases and sales/maturities of short-term
investments increased significantly in 1995 in order to
provide liquidity to fund various acquisitions made by
the company. It is expected that the 1996 investment
activity will return to prior years' levels. In
addition, the company periodically sells a portion of
its short-term investment portfolio in order to reduce
its borrowings.
Divestitures during 1994 included proceeds from the
Italian confectionery business and the Near East
specialty rice business, as well as other smaller
businesses. (See Note 3 to the Consolidated Financial
Statements.)
The company's Heinz Pet Products division completed
the purchase of $10.0 million of common stock of
Veterinary Centers of America, Inc. ("VCA") on January
18, 1995. The investment gives Heinz Pet Products an 18%
interest in VCA, which owns and operates a nationwide
network of veterinary hospitals and veterinary clinical
laboratories. Heinz Pet Products and VCA participate in
a joint venture, Vet's Choice, which markets and
distributes a line of specialty pet foods.
Financing activities provided $733.4 million in 1995
compared to requiring $861.5 million in 1994. In 1995,
the company used short- and long-term borrowings to fund
acquisitions, capital expenditures, and purchases of
treasury stock.
32
------------------------------------------------------------------------------
Net proceeds from short-term borrowings totaled $630.3
million in 1995, compared to net repayments of $398.3
million in 1994, principally due to the issuance of $700
million of short-term privately placed commercial paper
used to finance the acquisition of the Pet Food
Business. This commercial paper program is supported by
a line of credit agreement which expires in September
1995. A portion of the privately placed commercial paper
was repaid on April 26, 1995 through the issuance of
long-term debt.
The average amount of short-term borrowings
outstanding (excluding the long-term portion of domestic
commercial paper) during 1995, 1994 and 1993 was $1.2
billion, $1.2 billion and $1.9 billion, respectively.
Total short-term debt had a weighted average interest
rate during 1995 of 6.1% and at year-end of 6.7%. The
weighted average interest rate on short-term debt during
1994 was 4.3% and at year-end was 5.2%.
Aggregate domestic commercial paper had a weighted
average interest rate during 1995 of 5.3% and at year-
end of 6.1%. In 1994, the weighted average rate was
3.3%, and the rate at year-end was 3.6%. Based upon the
amount of commercial paper recorded at May 3, 1995, a
variance of 1/8% in the related interest rate would
cause interest expense to change by approximately $1.8
million. During 1995, the company, as noted below, began
converting from short-term to long-term debt in order to
mitigate adverse effects of interest rate changes. The
company continues to evaluate other long-term financing
vehicles in order to reduce short-term variable interest
rate debt.
In two separate offerings, the company issued notes in
the international capital markets which resulted in
total proceeds of approximately $555 million. The
company used the proceeds from the notes to repay
domestic commercial paper.
On January 5, 1995, the company issued $300 million of
three-year 8.0% notes in the international capital
markets. 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 million of
five-year 7.5% notes in the international capital
markets. The company used the proceeds from these notes
to repay a portion of the privately placed commercial
paper borrowings incurred in connection with the
acquisition of the Pet Food Business.
The company replaced its Fiscal 1994 line of credit
agreements supporting domestic commercial paper on
September 6, 1994. The new line of credit agreements
total $1.6 billion, of which $800 million expires on
September 5, 1995, at which time it is anticipated that
the company will establish a new one-year facility. The
remaining $800 million expires in September 1999. As a
result, $800 million of domestic commercial paper is
classified as long-term debt as of May 3, 1995. Fiscal
1994 domestic line of credit agreements of $1.5 billion
have been terminated. As of fiscal year-end 1994, $750
million of domestic commercial paper was classified as
long-term debt.
On March 14, 1995, Standard & Poor's Ratings Group
lowered the "A-1+" commercial paper rating and the "AA-"
long-term debt rating of the company to "A-1" and "A+,"
respectively. On April 7, 1995, Moody's Investors
Service lowered the senior debt rating of the company
from "Aa2" to "A1". The P-1 rating for commercial paper
has been confirmed.
On September 13, 1994, the Board of Directors raised
the quarterly dividend on the company's common stock
from $0.33 per share to $0.36 per share. The company
paid $345.4 million in dividends to both common and
preferred shareholders, an increase of $19.5 million
over 1994. The dividend rate
33
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
H.J. Heinz Company and Subsidiaries
------------------------------------------------------------------------------
in effect at the end of each year resulted in a payout
ratio of 60.5% in 1995, 56.2% in 1994, and 58.8% in 1993
(before the cumulative effect of the accounting change).
In 1995, the company repurchased 7.6 million shares of
treasury stock, or 3% of the amount outstanding at the
beginning of Fiscal 1995, at a cost of $273.7 million.
The previous 10.0 million share repurchase program,
which began in June 1993, was completed in September
1994. As of May 3, 1995, the company had repurchased 3.7
million shares as part of the current 10.0 million share
repurchase program, which was authorized by the Board of
Directors on September 13, 1994. During 1994, 6.5
million shares were repurchased at a cost of $222.6
million. The company may reissue repurchased shares upon
the exercise of stock options, conversion of preferred
stock and for general corporate purposes.
During the year, 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 May 3, 1995 Consolidated Balance
Sheet.
In March 1995, the Financial Accounting Standards
Board issued Financial Accounting Standard ("FAS") No.
121, "Accounting for the Impairment of Long-Lived 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
statement must be adopted no later than Fiscal 1997. The
company is currently evaluating the effect that
implementation of the new standard will have on its
results of operations and financial position.
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 1996
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 To date, the company has only partially realized
potential cost synergies (primarily administrative in
nature) from recent acquisitions; the company expects to
achieve further synergies from these acquisitions when
the manufacturing operations are rationalized.
In order to achieve these synergies, management
expects that implementation of its initial strategy to
combine recent acquisitions with existing operations,
which began in 1995, will continue through 1996. The
strategy includes plans to consolidate or relocate
certain production and other administrative activities
of the Pet Food Business, The All American Gourmet
Company, Farley's, and the Family Products Division of
Glaxo India, Ltd. It is anticipated that the strategy
will result in cash expenditures of approximately $77
million, which have been provided for in the opening
balance sheets of the acquired
34
------------------------------------------------------------------------------
companies as "other accrued liabilities." These
expenditures primarily relate to plans to exit certain
activities of the acquired companies (approximately $61
million) and terminate personnel performing duplicative
functions at acquired companies or relocate certain
employees of the acquired companies (approximately $16
million). The company has begun the rationalization
process by announcing the closing of the cannery at the
Topeka, Kansas factory of the Pet Food Business to
dedicate that facility to the production of dry pet food
and the closure of The All American Gourmet Company
headquarters in Orange, California. The company will have
final integration plans in place within one year from the
acquisition date of each company. The company expects that
certain integration costs will be incurred related to the
aforementioned acquisitions, which will be expensed as
incurred.
Separately, on June 19, 1995, the company announced
the closure of the Heinz Pet Products' Biloxi,
Mississippi, pet food manufacturing plant, which will
affect approximately 80 salaried and hourly employees.
This closure will result in an immaterial charge to
earnings in the first quarter of Fiscal 1996. Production
will be consolidated within existing Heinz Pet Products
operations.
------------------------------------------------------------------------------
RECENT DEVELOPMENT The company has agreed to assist certain shareholders
in diversifying their investment portfolios and, as a
result, will file a registration statement with the
Securities and Exchange Commission to facilitate the
sale of company common shares. The shareholders (Howard
Heinz Endowment, the Vira I. Heinz Endowment, the Heinz
Family Foundation and certain Heinz family trusts) have
announced their intention to sell a portion of their
common stock holdings in the company through an
underwritten secondary offering. This offering of
approximately 13.5 million shares (up to $700 million)
will be made by means of a prospectus only and is
expected to occur in August 1995.
------------------------------------------------------------------------------
STOCK MARKET H.J. Heinz Company common stock is traded principally
INFORMATION 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 30, 1995 approximated 59,369. The closing price
of the common stock on the New York Stock Exchange
composite listing on May 3, 1995 was $42 3/8.
Stock price information for common stock by quarter
follows:
Stock Price Range
-----------------------------------------------------
High Low
-----------------------------------------------------
1995
First $35 1/2 $31 5/8
Second 38 3/8 32 3/8
Third 41 1/4 35 1/2
Fourth 43 37 1/8
-----------------------------------------------------
1994
First $39 1/4 $35 1/8
Second 39 7/8 34 1/8
Third 38 1/2 34
Fourth 35 7/8 30 3/4
=====================================================
35
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
H.J. Heinz Company and Subsidiaries
------------------------------------------------------------------------------
SEGMENT AND The company is engaged principally in one line of
GEOGRAPHIC DATA 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.
(Dollars in thousands) Domestic Foreign Worldwide North America Europe Asia/Pacific Other
-------------------------------------------------------------------- ----------------------------------------------------------
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
1993
Sales $4,049,901 $3,053,473 $7,103,374 $4,429,916 $1,952,831 $ 565,465 $155,162
Operating income+ 412,998 447,887 860,885 478,053 300,463 58,620 23,749
Identifiable assets 3,930,173 2,891,148 6,821,321 4,296,904 1,772,138 669,420 82,859
Capital expenditures* 266,670 164,043 430,713 291,980 101,736 27,046 9,951
Depreciation and
amortization expense 136,590 98,345 234,935 155,530 60,142 15,076 4,187
==================================================================== ===========================================================
* 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. Fiscal 1993 domestic and foreign operating
income includes restructuring charges of $109.7 million and $82.6 million,
respectively.
36
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
H.J. Heinz Company and Subsidiaries
Fiscal Year Ended May 3, 1995 April 27, 1994 April 28, 1993
-----------------------------------------------------------------------------------------------------------
(Dollars in thousands, except per
share data) (53 weeks) (52 weeks) (52 weeks)
-----------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME:
Sales $8,086,794 $7,046,738 $7,103,374
Cost of products sold 5,119,597 4,381,745 4,530,563
-----------------------------------------------------------------------------------------------------------
Gross profit 2,967,197 2,664,993 2,572,811
Selling, general and administrative
expenses 1,811,388 1,723,651 1,711,926
Gain on sale of confectionery and
specialty rice businesses - 127,001 -
-----------------------------------------------------------------------------------------------------------
Operating income 1,155,809 1,068,343 860,885
Interest income 36,566 36,771 29,495
Interest expense 210,585 149,243 146,491
Other expense, net 43,783 33,485 28,108
-----------------------------------------------------------------------------------------------------------
Income before income taxes and
cumulative effect of accounting
change 938,007 922,386 715,781
Provision for income taxes 346,982 319,442 185,838
-----------------------------------------------------------------------------------------------------------
Income before cumulative effect of
accounting change 591,025 602,944 529,943
Cumulative effect of FAS No. 106
adoption - - (133,630)
-----------------------------------------------------------------------------------------------------------
Net income $ 591,025 $ 602,944 $ 396,313
-----------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF RETAINED
EARNINGS:
Amount at beginning of year $3,633,385 $3,356,399 $3,257,173
Net income 591,025 602,944 396,313
Cash dividends:
Common stock 345,358 325,887 297,009
Preferred stock 64 71 78
-----------------------------------------------------------------------------------------------------------
Amount at end of year $3,878,988 $3,633,385 $3,356,399
===========================================================================================================
PER COMMON SHARE AMOUNTS:
Income before cumulative effect of
accounting change $ 2.38 $ 2.35 $ 2.04
Cumulative effect of FAS No. 106
adoption - - (0.51)
-----------------------------------------------------------------------------------------------------------
Net income $ 2.38 $ 2.35 $ 1.53
Cash dividends $ 1.41 $ 1.29 $ 1.17
===========================================================================================================
Average common shares outstanding 248,537,537 256,812,016 259,788,461
===========================================================================================================
See Notes to Consolidated Financial Statements.
37
CONSOLIDATED BALANCE SHEETS
H.J. Heinz Company and Subsidiaries
Assets (Dollars in thousands) May 3, 1995 April 27, 1994
-------------------------------------------------------------------------
CURRENT ASSETS:
Cash and cash equivalents $ 124,338 $ 98,536
Short-term investments, at cost
which approximates market 82,693 43,868
Receivables (net of allowances:
1995 - $16,309 and 1994 -
$15,407) 1,030,790 812,501
Inventories:
Finished goods and work-in-
process 1,004,350 851,944
Packaging material and
ingredients 370,220 293,803
-------------------------------------------------------------------------
1,374,570 1,145,747
-------------------------------------------------------------------------
Prepaid expenses 190,412 154,017
Other current assets 20,219 36,861
-------------------------------------------------------------------------
Total current assets 2,823,022 2,291,530
-------------------------------------------------------------------------
-------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT:
Land 60,955 50,801
Buildings and leasehold
improvements 804,762 690,483
Equipment, furniture and other 3,138,937 2,701,656
-------------------------------------------------------------------------
4,004,654 3,442,940
Less accumulated depreciation 1,470,278 1,275,213
-------------------------------------------------------------------------
Total property, plant and
equipment, net 2,534,376 2,167,727
-------------------------------------------------------------------------
-------------------------------------------------------------------------
OTHER NON-CURRENT ASSETS:
Investments, advances and other
assets 543,032 579,420
Goodwill (net of amortization: 1995
- $163,793 and 1994 - $127,708) 1,682,933 992,994
Other intangibles (net of
amortization: 1995 - $117,430 and
1994 - $85,862) 663,825 349,475
-------------------------------------------------------------------------
Total other non-current assets 2,889,790 1,921,889
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Total assets $8,247,188 $6,381,146
=========================================================================
See Notes to Consolidated Financial Statements.
38
Liabilities and Shareholders' Equity
(Dollars in thousands) May 3, 1995 April 27, 1994
-------------------------------------------------------------------------
CURRENT LIABILITIES:
Short-term debt $1,018,354 $ 416,372
Portion of long-term debt due
within one year 55,937 23,329
Accounts payable 720,747 575,269
Salaries and wages 77,276 72,312
Accrued marketing 141,701 105,102
Other accrued liabilities 470,842 300,058
Accrued restructuring costs - 69,385
Income taxes 79,209 130,535
-------------------------------------------------------------------------
Total current liabilities 2,564,066 1,692,362
-------------------------------------------------------------------------
LONG-TERM DEBT AND OTHER
LIABILITIES:
Long-term debt 2,326,785 1,727,002
Deferred income taxes 348,576 248,630
Non-pension postretirement benefits 220,673 217,044
Other 314,219 157,557
-------------------------------------------------------------------------
Total long-term debt and other
liabilities 3,210,253 2,350,233
-------------------------------------------------------------------------
SHAREHOLDERS' EQUITY:
Capital stock:
Third cumulative preferred, $1.70
first series, $10 par value 358 398
Common stock, 287,401,000 shares
issued, $.25 par value 71,850 71,850
-------------------------------------------------------------------------
72,208 72,248
Additional capital 157,215 170,179
Retained earnings 3,878,988 3,633,385
Cumulative translation adjustments (157,159) (264,119)
-------------------------------------------------------------------------
3,951,252 3,611,693
Less:
Treasury shares, at cost
(43,724,933 shares at May 3,
1995 and 38,359,744 shares at
April 27, 1994) 1,450,724 1,239,177
Unearned compensation relating to
the ESOP 27,659 33,965
-------------------------------------------------------------------------
Total shareholders' equity 2,472,869 2,338,551
-------------------------------------------------------------------------
Total liabilities and shareholders'
equity $8,247,188 $6,381,146
=========================================================================
39
CONSOLIDATED STATEMENTS OF CASH FLOWS
H.J. Heinz Company and Subsidiaries
Fiscal Year Ended May 3, 1995 April 27, 1994 April 28, 1993
-----------------------------------------------------------------------------------------------------------
(Dollars in thousands) (53 weeks) (52 weeks) (52 weeks)
-----------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES:
Net income $ 591,025 $ 602,944 $ 396,313
Adjustments to reconcile net income to
cash provided by operating activities:
Depreciation 238,229 200,035 185,962
Amortization 77,038 59,774 48,973
Deferred tax provision 134,304 106,803 (75,263)
Gain on sale of confectionery and
specialty rice businesses - (127,001) -
Provision for restructuring - - 179,328
Cumulative effect of FAS No. 106
adoption - - 133,630
Other items, net (43,680) (55,767) (44,479)
Changes in current assets and
liabilities, excluding effects of
acquisitions and divestitures:
Receivables (77,039) 135,195 (137,499)
Inventories (87,580) 9,742 (114,347)
Prepaid expenses and other current
assets (27,634) 14,688 (47,433)
Accounts payable 111,361 67,660 15,038
Accrued liabilities (72,644) (110,822) (5,854)
Income taxes (90,874) 27,954 (122,471)
-----------------------------------------------------------------------------------------------------------
Cash provided by operating activities 752,506 931,205 411,898
-----------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Capital expenditures (341,788) (275,052) (430,713)
Acquisitions, net of cash acquired (1,178,819) (95,685) (370,189)
Proceeds from divestitures 52,497 265,573 1,872
Purchases of short-term investments (1,808,327) (598,486) (116,153)
Sales and maturities of short-term
investments 1,800,992 680,208 129,462
Investment in tax benefits 14,436 1,400 (37,226)
Other items, net (12,819) (5,377) (6,872)
-----------------------------------------------------------------------------------------------------------
Cash (used for) investing activities (1,473,828) (27,419) (829,819)
-----------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Proceeds from long-term debt 573,689 991 969,394
Payments on long-term debt (10,209) (18,249) (240,246)
Proceeds from (payments on) short-term
debt, net 630,310 (398,333) 11,730
Dividends (345,422) (325,958) (297,087)
Purchase of treasury stock (273,671) (222,582) (148,511)
Proceeds from minority interest 95,400 - -
Proceeds from borrowings against
insurance policies 70,931 134,162 -
Repayments of borrowings against
insurance policies (68,898) (65,264) -
Exercise of stock options 44,263 22,645 72,043
Other items, net 17,014 11,042 37,920
-----------------------------------------------------------------------------------------------------------
Cash provided by (used for) financing
activities 733,407 (861,546) 405,243
-----------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on
cash and cash equivalents 13,717 (12,136) (11,597)
-----------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and
cash equivalents 25,802 30,104 (24,275)
Cash and cash equivalents at beginning
of year 98,536 68,432 92,707
-----------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of
year $ 124,338 $ 98,536 $ 68,432
===========================================================================================================
See Notes to Consolidated Financial Statements.
40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
H.J. Heinz Company and Subsidiaries
------------------------------------------------------------------------------
1. SIGNIFICANT Fiscal Year: H.J. Heinz Company operates on a 52- or
ACCOUNTING 53-week fiscal year ending the Wednesday nearest April
POLICIES 30. However, certain foreign subsidiaries have earlier
closing dates to facilitate timely reporting. Fiscal
years for the financial statements included herein ended
May 3, 1995, April 27, 1994 and April 28, 1993.
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 1995
presentation.
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 to
determine the recoverability of the assets and
recognizes, on a current basis, any diminution in value.
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.
41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
H.J. Heinz Company and Subsidiaries
------------------------------------------------------------------------------
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. Fully diluted
earnings per share are not significantly different from
primary earnings per share and, accordingly, are not
presented.
Recently Issued Accounting Standards: In March 1995,
the Financial Accounting Standards Board issued
Financial Accounting Standard ("FAS") No. 121,
"Accounting for the Impairment of Long-Lived 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 statement must be
adopted no later than Fiscal 1997. The company is
currently evaluating the effect that implementation of
the new standard will have on its results of operations
and financial position.
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.
[ ]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 accrued 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. If an anticipated foreign currency
transaction does not occur, gains and losses are
recognized immediately.
[ ]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.
42
------------------------------------------------------------------------------
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.
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 preliminary allocation of the purchase price has
resulted in goodwill of $516.3 million and other
intangible assets of $153.8 million. These items are
being amortized on a straight-line basis over periods
not exceeding 40 years.
In connection with the acquisition of the Pet Food
Business, the company has established certain opening
balance sheet accruals for employee severance and
relocation costs ($7 million) and facilities
consolidation and closure costs (exit costs of $24
million) based upon a preliminary assessment of such
actions to be undertaken. The aforementioned amounts are
included in "other accrued liabilities" on the May 3,
1995 Consolidated Balance Sheet. On June 19, 1995, the
company announced that it intended to close the cannery
at the Topeka, Kansas factory and dedicate that facility
to dry pet food manufacturing. Canned pet food
production will be transferred to existing company-owned
facilities. As a result, it is expected that headcount
at Topeka, Kansas will be reduced by approximately 150.
The company will have final integration plans in place
within one year of the acquisition date.
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.
(Unaudited)
-------------------------------------------------------------------
(Dollars in thousands, except per
share amounts) 1995 1994
-------------------------------------------------------------------
Sales $8,502,405 $7,539,502
Net income $ 585,803 $ 595,389
Net income per share $ 2.36 $ 2.32
===================================================================
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.
43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
H.J. Heinz Company and Subsidiaries
------------------------------------------------------------------------------
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.
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 other 1995 acquisitions (excluding the Pet Food
Business) resulted in goodwill of $165.4 million and
other intangible assets of $167.9 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 has established opening balance sheet
accruals for the other 1995 acquisitions for employee
severance and relocation costs ($9 million) and
facilities consolidation and closure costs (exit costs
of $37 million) based upon a preliminary assessment of
such actions to be undertaken. These amounts are
included in "other accrued liabilities" on the May 3,
1995 Consolidated Balance Sheet.
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. The Moore's product range includes coated frozen
foods, specifically onion rings, cheeses and vegetables.
Domani offers frozen pasta, including manicotti, shells,
tortellini, ravioli and lasagna. The acquired product
lines strengthen the company's presence in the
foodservice industry.
In 1993, the company purchased Wattie's Limited of
Auckland, New Zealand from Goodman Fielder Wattie
Limited of Sydney, Australia for approximately $300
million. The acquisition resulted in goodwill of
approximately $115 million and other intangible assets
of approximately $35 million. These items are being
amortized over periods not exceeding 40 years.
Pro forma results of the company, assuming these 1994
and 1993 acquisitions had been made at the beginning of
each period presented, would not be materially different
from the results reported.
------------------------------------------------------------------------------
3. DIVESTITURES On August 20, 1993, 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. On September 15, 1993, 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 gains on these divestitures
totaled $127.0 million, or $0.24 per share.
During 1995 and 1994, the company also sold several
small businesses which did not have a material impact on
the results of operations. Pro forma results of the
company, assuming all of the 1995 and 1994 divestitures
had been made at the beginning of each period presented,
would not be materially different from the results
reported.
44
------------------------------------------------------------------------------
4. RESTRUCTURING In 1993, restructuring charges of $192.3 million on a
CHARGES pretax basis ($0.45 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). At the
time these charges were recorded, it was anticipated
that the company would reduce headcount by 3,000. As of
May 3, 1995, headcount has been reduced by more than
2,700.
------------------------------------------------------------------------------
5. INCOME TAXES The following table summarizes the provision for U.S.
federal and U.S. possessions, state and foreign taxes on
income.
(Dollars in thousands) 1995 1994 1993
-------------------------------------------------------------------------
Current:
U.S. federal and U.S.
possessions $114,819 $ 65,242 $119,746
State 19,106 22,093 28,153
Foreign 78,753 125,304 113,202
-------------------------------------------------------------------------
212,678 212,639 261,101
-------------------------------------------------------------------------
Deferred:
U.S. federal and U.S.
possessions 47,676 88,989 (25,129)
State 6,897 (2,635) (581)
Foreign 79,731 20,449 (49,553)
-------------------------------------------------------------------------
134,304 106,803 (75,263)
-------------------------------------------------------------------------
Total tax provision $346,982 $319,442 $185,838
=========================================================================
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 $3.1
million in 1995, $57.3 million in 1994, and $41.8
million in 1993. The 1993 tax provision also benefited
from an adjustment of deferred taxes for an enacted
foreign statutory rate change ($19.8 million) and an
increase in deferred tax assets for foreign tax credit
carryforwards ($40.0 million). In 1994, changes in U.S.
tax law that increased the U.S. federal statutory tax
rate from 34.0% to 35.0% and provided for the
deductibility of certain purchased intangibles and the
change in the Australian tax rate 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 $32.3
million in 1993.
The components of income before income taxes and
cumulative effect of accounting change consist of the
following:
(Dollars in thousands) 1995 1994 1993
-------------------------------------------------------------------------
Domestic $495,159 $418,395 $359,773
Foreign 442,848 503,991 356,008
-------------------------------------------------------------------------
$938,007 $922,386 $715,781
=========================================================================
45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
H.J. Heinz Company and Subsidiaries
------------------------------------------------------------------------------
The differences between the U.S. federal statutory tax
rate and the company's consolidated effective tax rate
are as follows:
1995 1994 1993
-------------------------------------------------------------------------
U.S. federal statutory
tax rate 35.0% 35.0% 34.0%
Tax on income of
foreign subsidiaries 0.9 2.9 3.1
State income taxes
(net of federal
benefit) 2.1 1.4 2.5
Net adjustment to
valuation allowance 2.2 (6.1) (7.7)
Enacted tax law
changes - (0.1) (2.8)
Tax credits (2.7) - (5.9)
Other (0.5) 1.5 2.8
-------------------------------------------------------------------------
Effective tax rate 37.0% 34.6% 26.0%
=========================================================================
The deferred tax (assets) and deferred tax liabilities
recorded on the balance sheets as of May 3, 1995 and
April 27, 1994 are as follows:
(Dollars in thousands) 1995 1994
----------------------------------------------------------------------
Depreciation/amortization $ 355,874 $ 295,248
Benefit plans 55,877 58,498
Other 117,249 99,729
----------------------------------------------------------------------
529,000 453,475
----------------------------------------------------------------------
Asset revaluations (35,125) (92,802)
Provision for estimated
expenses (55,921) (30,259)
Operating loss carryforwards (35,079) (32,234)
Benefit plans (101,042) (100,363)
Tax credit carryforwards (51,207) (25,907)
Other (113,869) (122,647)
----------------------------------------------------------------------
(392,243) (404,212)
----------------------------------------------------------------------
Valuation allowance 49,487 28,888
----------------------------------------------------------------------
Net deferred tax liabilities $ 186,244 $ 78,151
======================================================================
Net operating loss carryforwards total $90.7 million
in 1995. Of that amount, $38.1 million expire between
1996 and 2002; the other $52.6 million do not expire.
Foreign tax credit carryforwards total $51.2 million and
expire through 2000.
The company's consolidated United States income tax
returns have been audited by the Internal Revenue
Service for all years through 1989.
Undistributed earnings of foreign subsidiaries
considered to be reinvested permanently amounted to
$1.24 billion at May 3, 1995.
The net change in the valuation allowance for deferred
tax assets was an increase of $20.6 million.
In June 1991, Heinz's Italian affiliate, PLADA,
elected to revalue for tax purposes certain assets as a
result of legislation enacted by the Italian Parliament.
The revaluation required payment of $77.0 million over
two years for approximately $180 million in future tax
benefits. One installment payment was made in 1992 for
$44.7 million. The remaining payment was made in the
second quarter of 1993 for $32.3 million.
46
------------------------------------------------------------------------------
6. DEBT
Short-Term (Dollars in thousands) 1995 1994
----------------------------------------------------------------------------------------------------------
Commercial paper $ 662,802 $257,202
Bank and other borrowings 355,552 159,170
----------------------------------------------------------------------------------------------------------
$1,018,354 $416,372
==========================================================================================================
Long-Term Range of Maturity
(Dollars in thousands) Interest (Fiscal Year) 1995 1994
----------------------------------------------------------------------------------------------------------
United States Dollars:
Commercial paper Variable 2000 $ 800,000 $ 750,000
Senior unsecured notes 5.50-6.88% 1998-2003 749,386 749,238
Eurodollar bonds 7.50-8.00 1997-2000 629,834 75,000
Revenue bonds 5.63-11.75 1996-2003 10,814 12,383
Promissory notes 7.00-12.00 1996-2005 27,579 30,279
Other 8.10 1996-2002 7,527 5,360
----------------------------------------------------------------------------------------------------------
2,225,140 1,622,260
----------------------------------------------------------------------------------------------------------
Foreign Currencies
(U.S. Dollar Equivalents):
Promissory notes:
Pounds sterling 8.85% 1996-2000 65,781 71,490
Italian lire 4.90-17.20 1996-2003 27,673 19,067
Spanish pesetas 4.75 1996-1999 1,825 7,253
Other 12.40-18.40 1996-2005 62,303 30,261
----------------------------------------------------------------------------------------------------------
157,582 128,071
----------------------------------------------------------------------------------------------------------
Total long-term debt 2,382,722 1,750,331
Less portion due within one year 55,937 23,329
----------------------------------------------------------------------------------------------------------
$2,326,785 $1,727,002
==========================================================================================================
The amount of long-term debt that matures in each of
the four years succeeding 1996 is: $106.7 million in
1997, $579.5 million in 1998, $26.6 million in 1999 and
$1.4 billion in 2000.
The company currently maintains two domestic
commercial paper programs which are supported by line of
credit agreements. Total availability under the domestic
programs at May 3, 1995 was $2.3 billion. Total domestic
commercial paper had a weighted average interest rate
during the year of 5.3% and at year-end of 6.1%.
On March 14, 1995, the company issued $700.0 million
of privately placed commercial paper, the proceeds of
which were used to fund the acquisition of the Pet Food
Business. This commercial paper program is supported by
a separate line of credit agreement which expires in
September 1995.
On September 6, 1994, the company replaced its fiscal
year 1994 line of credit agreements supporting domestic
commercial paper. The new line of credit agreements
total $1.6 billion, of which $800.0 million expires on
September 5, 1995, at which time it is anticipated that
a new one-year facility will be established. The
remaining $800.0 million expires in September 1999. As a
result, $800.0 million of domestic commercial paper is
classified as long-term debt as of May 3, 1995. The 1994
domestic line of credit agreements of $1.5 billion were
terminated.
The company also maintains a commercial paper program
in Canada. Outstanding Canadian
47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
H.J. Heinz Company and Subsidiaries
------------------------------------------------------------------------------
commercial paper, which is classified as short-term
debt, was $45.1 million as of May 3, 1995. The weighted
average interest rate for Canadian commercial paper
during 1995 was 6.6%, and at year-end, was 8.2%. In
addition, the company had $565.2 million of other
foreign and other domestic lines of credit available at
year-end, principally for overdraft protection.
Total short-term debt had a weighted average interest
rate during 1995 of 6.1% and at year-end of 6.7%. The
weighted average interest rate on short-term debt during
1994 was 4.3% and at year-end was 5.2%.
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 have been 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 have been used to
repay a portion of the privately placed commercial paper
borrowings incurred in connection with the acquisition
of the Pet Food Business.
During 1993, the company issued senior unsecured notes
in three separate issuances totaling approximately $750
million. These notes were issued at interest rates
ranging from 5.5% to 6.875% and with maturity dates
extending from 1998 through 2003.
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 Pds40.9 million ($65.8 million),
which will be fully amortized in five years. The
effective interest rate was 8.3% at May 3, 1995 and
April 27, 1994.
------------------------------------------------------------------------------
7. SHAREHOLDERS' Capital Stock: The preferred stock outstanding is
EQUITY convertible at a rate of one share of preferred stock
into 9.0 shares of common stock. The company can redeem
the stock at $28.50 per share.
On May 3, 1995, 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 participant's 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 5.6%, 4.2% and 4.1% for 1995, 1994 and
1993, respectively) and is included in the company's
Consolidated Balance Sheets as unearned compensation.
The proceeds of the note were used to purchase 1,577,908
shares of treasury stock from the company at
approximately $31.70 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
48
------------------------------------------------------------------------------
compensation and interest expense. Compensation expense
related to the ESOP for 1995, 1994 and 1993 was $3.7
million, $3.3 million and $2.7 million, respectively.
Interest expense was $1.9 million, $1.7 million and $1.7
million for 1995, 1994 and 1993, 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 $2.5 million, $1.9 million and $1.7 million in
1995, 1994 and 1993, respectively.
The ESOP shares outstanding at May 3, 1995 were as
follows: unallocated 778,321, committed-to-be-released
44,846 and allocated 571,313. 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 $107.0 million in 1995,
increased $70.7 million in 1994 and increased $107.6
million in 1993.
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
--------------------------------------------------------------------------------------------------------------------------------
Balance April 29, 1992 $480 $71,850 287,401 $ 999,845 33,344 $165,112
Reacquired - - - 148,511 3,885 -
Conversion of
preferred into
common stock (42) - - (946) (38) (904)
Stock options
exercised, net of
shares tendered for
payment - - - (99,078) (4,093) 5,112
Other, net - - - (1,427) (62) 988
--------------------------------------------------------------------------------------------------------------------------------
Balance April 28, 1993 $438 $71,850 287,401 $1,046,905 33,036 $170,308
Reacquired - - - 222,582 6,475 -
Conversion of
preferred into
common stock (40) - - (985) (36) (945)
Stock options
exercised - - - (27,605) (1,054) 267
Other, net - - - (1,720) (61) 549
--------------------------------------------------------------------------------------------------------------------------------
Balance April 27, 1994 $398 $71,850 287,401 $1,239,177 38,360 $170,179
Reacquired - - - 273,671 7,637 -
Conversion of
preferred into
common stock (40) - - (976) (36) (937)
Stock options
exercised, net of
shares tendered for
payment - - - (53,305) (2,023) (12,264)
Other, net - - - (7,843) (213) 237
--------------------------------------------------------------------------------------------------------------------------------
Balance May 3, 1995 $358 $71,850 287,401 $1,450,724 43,725 $157,215
================================================================================================================================
Authorized Shares--
May 3, 1995 36 600,000
================================================================================================================================
49
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
H.J. Heinz Company and Subsidiaries
------------------------------------------------------------------------------
8. SUPPLEMENTAL CASH
FLOWS INFORMATION
(Dollars in thousands) 1995 1994 1993
------------------------------------------------------------------------
Cash Paid During The
Year For:
Interest $ 210,610 $146,951 $134,179
Income taxes 251,358 153,000 347,701
========================================================================
Details of Acquisitions:
Fair value of assets $1,359,028 $102,382 $478,240
Liabilities 179,942 6,697 106,893*
------------------------------------------------------------------------
Cash paid 1,179,086 95,685 371,347
Less cash acquired 267 - 1,158
------------------------------------------------------------------------
Net cash paid for
acquisitions $1,178,819 $ 95,685 $370,189
========================================================================
* Includes notes to seller.
------------------------------------------------------------------------------
9. EMPLOYEES' STOCK Under the company's stock option plans, officers and
OPTION PLANS AND other key employees may be granted options to purchase
MANAGEMENT shares of the company's common stock. The option price
INCENTIVE PLANS on all outstanding options is equal to the fair market
value of the stock at the date of grant.
The Board of Directors adopted and the shareholders
approved, effective April 13, 1994, a new stock option
plan providing for the grant of up to 12.0 million
shares of common stock at any time over the next ten
years. As of May 3, 1995, options for approximately 8.4
million shares had been granted under this plan. In
general, the terms of this plan are similar to the
company's other stock option plans.
The shares authorized but not granted under the
company's stock option plans were 3,639,890 at May 3,
1995 and 5,717,590 at April 27, 1994.
Data regarding the company's stock option plans
follows:
Range of
Shares Option Price
-------------------------------------------------------------------------
Shares under option
April 29, 1992 21,800,217 $ 6 3/8-40 1/2
Options granted 2,482,500 35 7/8-43 1/4
Options exercised (4,109,275) 6 3/8-37 3/4
Options surrendered (49,000) 22 -38 7/8
-------------------------------------------------------------------------
Shares under option
April 28, 1993 20,124,442 $ 8 7/8-43 1/4
Options granted 9,467,500 30 7/8-39 3/4
Options exercised (1,054,230) 9 1/2-37 3/4
Options surrendered (473,500) 34 1/2-43 1/4
-------------------------------------------------------------------------
Shares under option
April 27, 1994 28,064,212 $ 8 7/8-43 1/4
Options granted 2,378,700 32 5/8-41 5/8
Options exercised (2,025,958) 8 7/8-38 7/8
Options surrendered (303,000) 32 5/8-43 1/4
-------------------------------------------------------------------------
Shares under option
May 3, 1995 28,113,954 $13 7/8-43 1/4
=========================================================================
Options exercisable at:
April 27, 1994 8,307,710
May 3, 1995 11,836,254
=========================================================================
50
------------------------------------------------------------------------------
Common stock reserved for options totaled 31,753,844
shares as of May 3, 1995 and 33,781,802 shares as of
April 27, 1994.
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 $24 million in 1995, $12 million
in 1994 and $17 million in 1993.
------------------------------------------------------------------------------
10. RETIREMENT PLANS The company maintains retirement plans for the
majority of its 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.
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 7 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:
(Dollars in thousands) 1995 1994 1993
------------------------------------------------------------------------
Defined Benefit Plans:
Benefits earned during
the year $ 14,648 $ 15,215 $ 20,384
Interest cost on
projected benefit
obligation 66,734 66,706 65,612
Actual return on plan
assets (26,254) (98,673) (98,358)
Net amortization and
deferral (56,285) 25,028 21,292
------------------------------------------------------------------------
(1,157) 8,276 8,930
Defined contribution
plans (excluding the
ESOP) 17,222 16,493 4,514
------------------------------------------------------------------------
Total pension cost $ 16,065 $ 24,769 $ 13,444
========================================================================
51
------------------------------------------------------------------------------
The following table sets forth the combined funded
status of the company's principal defined benefit plans
at May 3, 1995 and April 27, 1994.
(Dollars in thousands) 1995 1994
----------------------------------------------------------------------
Actuarial present value of:
Accumulated benefit obligation,
primarily vested $859,340 $775,986
Additional obligation for
projected compensation
increases 48,753 43,074
----------------------------------------------------------------------
Projected benefit obligation 908,093 819,060
Plan assets, at fair value 969,139 933,257
----------------------------------------------------------------------
Plan assets in excess of
projected benefit obligation 61,046 114,197
Unamortized prior service cost 77,853 60,238
Unamortized actuarial losses, net 89,753 22,910
Unamortized net assets at date of
adoption (31,423) (36,885)
----------------------------------------------------------------------
Prepaid pension costs $197,229 $160,460
======================================================================
The weighted average rates used for the years ended
May 3, 1995, April 27, 1994 and April 28, 1993 in
determining the net pension costs and projected benefit
obligations for defined benefit plans were as follows:
1995 1994 1993
------------------------------------------------------------------------
Expected rate of return
on plan assets 10.0% 10.0% 10.1%
Discount rate 8.7% 8.3% 8.6%
Compensation increase
rate 5.2% 4.8% 6.2%
========================================================================
Assumptions for foreign defined benefit plans are
developed on a basis consistent with those for U.S.
plans, adjusted for prevailing economic conditions.
------------------------------------------------------------------------------
11. POSTRETIREMENT The company and certain of its subsidiaries provide
BENEFITS OTHER health care and life insurance benefits for retired
THAN PENSIONS employees and their eligible dependents. Certain of the
AND OTHER company's U.S. and Canadian employees may become
POSTEMPLOYMENT eligible for such benefits. In general, postretirement
BENEFITS 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 are 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.
In 1993, the company adopted FAS No. 106, "Employers'
Accounting for Postretirement Benefits Other Than
Pensions." FAS No. 106 requires that the accrual method
of accounting for postretirement benefits other than
pensions be used and the accrual period be based on the
period that the employees
52
------------------------------------------------------------------------------
render the services necessary to earn their postretirement
benefits. Effective April 30, 1992, the company elected to
recognize immediately 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
$0.51 per share. In addition, the adoption of FAS No. 106
increased the company's pretax postretirement benefit
expense by $16.3 million ($0.04 per share) in 1993. These
charges had no effect on consolidated cash flows.
Net postretirement costs consisted of the following:
(Dollars in thousands) 1995 1994 1993
------------------------------------------------------------------------
Postretirement benefits
earned during the year $ 2,700 $ 6,512 $ 8,462
Interest cost on
accumulated
postretirement benefit
obligation 13,249 15,740 16,457
Net amortization and
deferral (5,165) (2,986) (885)
------------------------------------------------------------------------
Net postretirement benefit
costs $10,784 $19,266 $24,034
========================================================================
The following table sets forth the combined status of
the company's postretirement benefit plans at May 3,
1995 and April 27, 1994.
(Dollars in thousands) 1995 1994
----------------------------------------------------------------------
Accumulated postretirement
benefit obligation:
Retirees and spouses $121,380 $110,892
Employees currently eligible to
retire 17,614 20,939
Employees not yet eligible to
retire 36,763 49,922
----------------------------------------------------------------------
Total accumulated postretirement
benefit obligation 175,757 181,753
Unamortized prior service cost 38,510 34,633
Unrecognized net gain 15,406 9,658
----------------------------------------------------------------------
Accrued postretirement benefit
obligation 229,673 226,044
Current portion, included in
other accrued liabilities 9,000 9,000
----------------------------------------------------------------------
Non-pension postretirement
benefits $220,673 $217,044
======================================================================
The weighted average discount rate used in the
calculation of the accumulated postretirement benefit
obligation and the net postretirement benefit cost was
8.4% in 1995 and 8.0% in 1994. The assumed annual
composite rate of increase in the per capita cost of
company-provided health care benefits begins at 10.1%
for 1996, gradually decreases to 5.8% 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 $18.8 million,
and the aggregate of the service and interest components
of 1995 net postretirement benefit costs to increase by
$2.3 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.
53
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
H.J. Heinz Company and Subsidiaries
------------------------------------------------------------------------------
12. FINANCIAL Interest Rate Swap Agreements: As of May 3, 1995, the
INSTRUMENTS notional values and unrealized gains or losses related
to such agreements held by the company were not
material.
Foreign Currency Contracts: As of May 3, 1995, the
company held currency swap contracts with an aggregate
notional amount of approximately $102 million. These
contracts have maturity dates extending from 1996
through 2002. The company also had separate contracts to
purchase certain foreign currencies totaling $258.9
million and to sell certain foreign currencies totaling
$69.6 million, most of which mature during Fiscal 1996.
Net unrealized gains and losses associated with the
company's foreign currency contracts as of May 3, 1995
were not material.
Commodity Contracts: As of 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.
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 basis using the
rates available for instruments with the same remaining
maturities. As of May 3, 1995 and April 27, 1994, 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 with
maturities of less than one year.
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.
54
------------------------------------------------------------------------------
13. QUARTERLY RESULTS (UNAUDITED)
1995
------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands,
except per share data) First Second Third Fourth Total
------------------------------------------------------------------------------------------------------------------------------
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 $0.62 $0.56 $0.56 $0.64 $2.38
Dividends 0.33 0.36 0.36 0.36 1.41
1994
------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands,
except per share data) First Second Third Fourth Total
------------------------------------------------------------------------------------------------------------------------------
Sales $1,583,312 $1,807,729 $1,710,209 $1,945,488 $7,046,738
Gross profit 619,974 649,007 671,146 724,866 2,664,993
Net income 152,179 193,125 128,567 129,073 602,944
Per Common Share Amounts:
Net income $0.59 $0.75 $0.50 $0.51 $2.35
Dividends 0.30 0.33 0.33 0.33 1.29
===============================================================================================================================
Fourth-quarter 1995 results contain an additional week
of activity due to a 53-week fiscal year.
Second-quarter 1994 results include gains on the sale
of the confectionery and specialty rice businesses that
totaled $127.0 million on a pretax basis ($0.24 per
share). (See Note 3 to the Consolidated Financial
Statements.)
Fourth-quarter 1994 earnings benefited from a lower
effective tax rate resulting from tax benefits from
overseas operations of $57.3 million ($0.22 per share).
(See Note 5 to the Consolidated Financial Statements.)
------------------------------------------------------------------------------
14. COMMITMENTS AND Legal Matters: On December 31, 1992, a food wholesale
CONTINGENCIES 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 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 $89.5 million in
1995, $94.0 million in 1994 and $89.7 million in 1993.
Future lease payments for non-cancellable operating
leases as of May 3, 1995 totaled $218.7 million (1996-
$50.3 million, 1997-$39.4 million, 1998-$30.5 million,
1999-$20.8 million, 2000-$15.6 million and thereafter-
$62.1 million).
55
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.
------------------------------------------------------------------------------
INDEPENDENT ACCOUNTANTS' REPORT
The Shareholders
H.J. Heinz Company:
We have audited the accompanying Consolidated Balance Sheets of H.J. Heinz
Company and Subsidiaries as of May 3, 1995 and April 27, 1994, and the related
Consolidated Statements of Income, Retained Earnings and Cash Flows for each
of the three years in the period ended May 3, 1995. 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 as of May 3, 1995 and April 27, 1994, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended May 3, 1995 in conformity with generally
accepted accounting principles.
As discussed in Note 11 to the Consolidated Financial Statements, the
company adopted the provisions of Statement of Financial Accounting Standards
No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions" in Fiscal 1993.
/s/ Coopers & Lybrand L.L.P.
600 Grant Street
Pittsburgh, Pennsylvania
June 19, 1995
56
EX-21
5
SUBSIDIARIES
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.
Subsidiary State or Country
---------- ----------------
Alimentos Heinz, C.A. Venezuela
The All American Gourmet Company State of Delaware
Crestar Food Products, 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-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
Wattie's Limited New Zealand
Weight Watchers Food Company State of Delaware
Weight Watchers International, Inc. Commonwealth of Virginia
EX-24
6
POWER OF ATTORNEY
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 3, 1995, 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 virture hereof.
This Power of Attorney has been signed below as of the 12th day of
July, 1995 by the following persons in the capacities indicated.
Signature Title
--------- -----
/s/ Anthony J. F. O'Reilly Chairman of the Board, President
-------------------------- and Chief Executive Officer and
Anthony J. F. O'Reilly Director (Principal Executive
Officer)
/s/ David R. Williams Senior Vice President - Finance and
-------------------------- Chief Financial Officer and
David R. Williams Director (Principal Financial
Officer)
/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
/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
EX-27
7
FINANCIAL DATA SCHEDULE
5
1,000
U.S. DOLLARS
YEAR
MAY-03-1995
APR-28-1994
MAY-03-1995
1
124,338
82,693
1,030,790
16,309
1,374,570
2,823,022
4,004,654
1,470,278
8,247,188
2,564,066
2,326,785
71,850
0
358
2,400,661
8,247,188
8,086,794
8,086,794
5,119,597
5,119,597
0
0
210,585
938,007
346,982
591,025
0
0
0
591,025
2.38
2.37