-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FRLJjnl0VmkKblebGLL93Qz96YCi2X3qhCqcwQ401PbUVWAKcH8IPwfzJ4wSoFOO hlzxzwwIkLt1Mgtc4E3QEw== 0000950132-96-000442.txt : 19960729 0000950132-96-000442.hdr.sgml : 19960729 ACCESSION NUMBER: 0000950132-96-000442 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19960501 FILED AS OF DATE: 19960726 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-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-03385 FILM NUMBER: 96599314 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-K 1 H.J. HEINZ 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 1, 1996 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number 1-3385 H. J. HEINZ COMPANY (Exact name of registrant as specified in its charter) PENNSYLVANIA 25-0542520 (State of Incorporation) (I.R.S. Employer Identification No.) 600 GRANT STREET, PITTSBURGH, PENNSYLVANIA 15219 (Address of principal executive offices) (Zip Code) 412-456-5700 (Registrant's telephone number) SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
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, New York Stock Exchange $1.70 First Series, par value $10 per share
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: None. Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] As of June 30, 1996 the aggregate market value of the Registrant's voting stock held by non-affiliates of the Registrant was approximately $10,661,067,896. The number of shares of the Registrant's Common Stock, par value $.25 per share, outstanding as of June 30, 1996, was 369,813,162 shares. DOCUMENTS INCORPORATED BY REFERENCE Portions of Registrant's Annual Report to Shareholders for the fiscal year ended May 1, 1996, are incorporated into Part I, Items 1 and 3; Part II, Items 5, 7 and 8; and Part IV, Item 14. Portions of Registrant's Proxy Statement for the 1996 Annual Meeting of Shareholders are incorporated into Part III, Items 10, 11, 12 and 13. PART I ITEM 1. BUSINESS. H. J. Heinz Company was incorporated in Pennsylvania on July 27, 1900. In 1905, it succeeded to the business of a partnership operating under the same name which had developed from a food business founded in 1869 at Sharpsburg, Pennsylvania by Henry J. Heinz. H. J. Heinz Company and its consolidated subsidiaries (collectively, the "Company" or the "Registrant" unless the context indicates otherwise) manufacture and market an extensive line of processed food products throughout the world. The Company's products include ketchup and sauces/condiments, pet food, tuna and other seafood products, baby food, frozen potato products, soup (canned and frozen), lower-calorie products (frozen entrees, frozen desserts, frozen breakfasts, dairy and other products), beans, full calorie frozen dinners and entrees, pasta, coated products, bakery products, chicken, vegetables (frozen and canned), frozen pizza and pizza components, ice cream and ice cream novelties, edible oils, margarine/shortening, vinegar, pickles, juices and other processed food products. The Company operates principally in one segment of business-- processed food products--which represents more than 90% of consolidated sales. The Company also operates and franchises weight control classes and operates other related programs and activities. The Company intends to continue to engage principally in the business of manufacturing and marketing processed food products and the ingredients for food products. The Company's products are manufactured and packaged to provide safe, stable, wholesome foods which are used directly by consumers and foodservice and institutional customers. Many products are prepared from recipes developed in the Company's research laboratories and experimental kitchens. Ingredients are carefully selected, washed, trimmed, inspected and passed on to modern factory kitchens where they are processed, after which the finished product is filled automatically into containers of glass, metal, plastic, paper or fiberboard which are then closed, processed, labeled and cased for market. Finished products are processed by sterilization, homogenization, chilling, freezing, pickling, drying, freeze drying, baking or extruding. Certain finished products and seasonal raw materials are aseptically packed into sterile containers after in-line sterilization. The Company has three classes of similar products, each of which has accounted for 10% or more of consolidated sales in one or more of the prior three fiscal years listed below. The following table shows sales, as a percentage of consolidated sales, for each of these classes of similar products for each of the last three fiscal years.
1996 1995 1994 ---- ---- ---- Ketchup, sauces and other condiments....................... 19% 21% 19% Pet food................................................... 12 9 9 Tuna and other seafood products............................ 9 9 10 All other classes of products, none of which accounts for 10% or more of consolidated sales..................... 60 61 62 --- --- --- 100% 100% 100% === === ===
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, "Rosetto" and "Domani" for frozen pasta products, "Earth's Best" for baby food and "Dyna Bites" and "Cheese Bites" for appetizer products, all of which are marketed in the United States. "9 Lives" is used for cat foods, "Kibbles N' Bits", "Ken-L-Ration", "Reward" and "IVD" for dog food, "Jerky Treats", "Meaty Bones", "Snausages" and "Pup-Peroni" for dog snacks, "Nature's Recipe" for dog and cat foods, all of which are marketed in the United States and Canada. "Amore" is used for cat foods, "Kozy Kitten" for canned cat foods, "Cycle", "Gravy Train", "Skippy Premium", "Recipe" and "Vets" for dog food, "Pounce" for cat treats, all of which are marketed in the United States. "Chef Francisco" is used for frozen soups and "Omstead" is used for frozen vegetables, frozen coated products and frozen fish products, both of which are marketed in the United States and Canada. "Pablum" is used for baby food products marketed in Canada. "Plasmon", "Nipiol" and "Dieterba" are used for baby food products, "Misura" for dietetic products for adults, "Ortobuono" for pickled vegetables and fruit in syrup, "Mare D'Oro" for seafood and "Mareblu" for tuna, "Mr. Foody" for table and kitchen sauces, "Bi-Aglut", "Aproten", "Polial" and "Dialibra" for nutraceutical products, all of which are mainly marketed in Italy. "Petit Navire" is used for tuna and mackerel products, "Marie Elisabeth" for sardines and tuna and "Orlando" and "Guloso" for tomato products, all of which are marketed in various European countries. "Wattie's" is used for various grocery products and frozen foods, "Tip Top" for ice cream and frozen desserts, "Tegel" for poultry products, "Chef" and "Champ" for cat and dog foods and "Craig's" for jams and marmalades, all of which are marketed in New Zealand, Australia and the Asia/Pacific region. "Farley's" and "Farex" are used for baby food products marketed in Europe, Canada, India, Australia and New Zealand. "Glucon D" and "Complan" are used for nutritional drink mixes marketed in India and in the case of "Complan" also Latin America and New Zealand. "Ganave" is used for pet food in Argentina. "N/R Original Recipe" is used for dog and cat foods marketed in various European countries. "Weight Watchers" is used in numerous countries in conjunction with owned and franchised weight control classes, programs, related activities and certain food products. "Budget Gourmet" is used on frozen entrees and dinners. The Company also markets certain products under other trademarks and brand names and under private labels. Although crops constituting some of the Company's raw food ingredients are harvested on a seasonal basis, most of the Company's products are produced throughout the year. Seasonal factors inherent in the business have always influenced the quarterly sales and net income of the Company. Consequently, comparisons between quarters have always been more meaningful when made between the same quarters of different years. The products of the Company are sold under highly competitive conditions, with many large and small competitors. The Company regards its principal competition to be other manufacturers of processed foods, including branded, retail products, foodservice products and private label products, that compete with the Company for consumer preference, distribution, shelf space and merchandising support. Product quality and consumer value are important areas of competition. The Company's Weight Watchers International, Inc. subsidiary also competes with a wide variety of weight control programs. 3 The Company's products are sold through its own sales force and through independent brokers and agents to chain, wholesale, cooperative and independent grocery accounts, to pharmacies, to foodservice distributors and to institutions, including hotels, restaurants and certain government agencies. The Company is not dependent on any single customer or a few customers for a material part of its sales. Compliance with the provisions of national, state and local environmental laws and regulations has not had a material effect upon the capital expenditures, earnings or competitive position of the Company. The Company's estimated capital expenditures for environmental control facilities for the remainder of fiscal year 1997 and the succeeding fiscal year are not material and will not materially affect either the earnings or competitive position of the Company. The Company's factories are subject to inspections by various governmental agencies, and its products must comply with the applicable laws, including food and drug laws, of the jurisdictions in which they are manufactured and marketed. The Company employed, on a full-time basis as of May 1, 1996, approximately 43,300 persons around the world. Financial segment information by major geographic area for the most recent three fiscal years is set forth on page 41 of the Company's Annual Report to Shareholders for the fiscal year ended May 1, 1996. Such information is incorporated herein by reference. Income from international operations is subject to fluctuation in currency values, export and import restrictions, foreign ownership restrictions, economic controls and other factors. From time to time exchange restrictions imposed by various countries have restricted the transfer of funds between countries and between the Company and its subsidiaries. To date, such exchange restrictions have not had a material adverse effect on the Company's international operations. FORWARD-LOOKING STATEMENTS The Private Securities Litigation Reform Act of 1995 (the "Act") provides a "safe harbor" for forward-looking statements to encourage companies to provide prospective information about their companies, so long as those statements are identified as forward-looking and are accompanied by meaningful cautionary statements identifying important factors (the "Factors") that could cause actual results to differ materially from those discussed in the statement. The Company desires to take advantage of the "safe harbor" provisions of the Act with regard to oral and written forward-looking statements made from time to time including but not limited to the forward-looking statements contained in the Chairman's Letter to Shareholders (pages 3 to 5 of the Company's Annual Report to Shareholders for the fiscal year ended May 1, 1996), Management's Discussion and Analysis (pages 34 to 41 of the Company's Annual Report to Shareholders for the fiscal year ended May 1, 1996) and statements set forth in this Annual Report on Form 10-K and other filings with the Securities and Exchange Commission. The forward-looking statements are and will be based on management's then current views and assumptions regarding future events and financial performance. The Factors identified by the Company include, among other things, the following: general economic and business conditions in the domestic and global markets; actions of competitors, including competitive pricing; changes in consumer preferences and spending patterns; changes in social and demographic trends; changes in laws and regulations, including changes in taxation and accounting standards; foreign currency rate fluctuations; interest rate fluctuations; the effects of changing prices for the raw materials used by the Company and its subsidiaries; and the effectiveness of the Company's marketing, advertising and promotional programs. ITEM 2. PROPERTIES. The Company has 42 food processing plants in the United States and its possessions, of which 36 are owned and six are leased, as well as 62 food processing plants in foreign countries, of which 56 are owned and six are leased, including thirteen in New Zealand, six in Canada, six in the United Kingdom, six in Italy, four in Australia, three in Spain, two in Greece, two in Portugal, two in Zimbabwe, and one in each of Argentina, Botswana, the Czech Republic, Ecuador, France, Ghana, Hungary, India, Ireland, Japan, Netherlands, People's Republic of China, Republic of Korea, Russia, Seychelles, South Africa, Thailand and Venezuela. The Company also leases two can-making factories in the United States and its possessions. The Company and certain of its subsidiaries also own or lease office space, warehouses and research and other facilities. The Company's food processing plants and principal properties are in good condition and are satisfactory for the purposes for which they are being utilized. 4 ITEM 3. LEGAL PROCEEDINGS. With respect to the antitrust litigation against the Company and its two principal competitors in the United States baby food industry which was previously reported in the Company's Annual Report on Form 10-K for the fiscal year ended May 3, 1995, see Note 13 to the Consolidated Financial Statements on page 61 of the Company's Annual Report to Shareholders for the fiscal year ended May 1, 1996, which is incorporated herein by reference. On April 15, 1996, the defendants filed a motion for summary judgment to which the plaintiffs filed a response on May 20, 1996. The Company continues to believe that all of the suits and claims are without merit and is defending itself vigorously against them. With respect to the lawsuit in the U.S. District Court for the District of Puerto Rico which was previously reported in the Company's Annual Report on Form 10-K for the fiscal year ended May 3, 1995, the District Court approved a consent decree filed in the matter and dismissed the lawsuit on May 22, 1996. Related appeals to the Puerto Rico Supreme Court by the plaintiff have also been dismissed. The Puerto Rico Environmental Quality Board ("EQB") and the U.S. Environmental Protection Agency have approved the consent decree which required Mayaguez Water Treatment Company, Inc., an indirectly 70% owned subsidiary of the Company, to pay $500,000 to the EQB and $500,000 to fund research relating to the ecology of the Bay of Mayaguez. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Company has not submitted any matters to a vote of security holders since the last annual meeting of shareholders on September 12, 1995. EXECUTIVE OFFICERS OF THE REGISTRANT The following is a list of the names and ages of all of the executive officers of the Company indicating all positions and offices with the Company held by each such person and each such person's principal occupations or employment during the past five years. All the executive officers have been elected to serve until the next annual election of officers or until their successors are elected, or until their earlier resignation or removal. The annual election of officers is scheduled to occur on September 10, 1996.
Positions and Offices Held with the Company and Age (as of Principal Occupations or Name September 10, 1996) Employment During Past Five Years ---- ------------------- --------------------------------- Anthony J. F. O'Reilly 60 Chairman of the Board since March 11, 1987, Chief Executive Officer since July 1, 1979 and President from July 1, 1979 to June 12, 1996. Joseph J. Bogdanovich 84 Vice Chairman of the Board since September 7, 1988; also in charge of Heinz Japan Ltd. since June 20, 1973 and Chairman of the Board of Star-Kist Foods, Inc. William R. Johnson 47 President and Chief Operating Officer since June 12, 1996; Senior Vice President in charge of Star- Kist Foods, Inc. and Heinz operations in the Asia Pacific area from September 8, 1993 to June 12, 1996; Chief Executive Officer of Star-Kist Foods, Inc. since May 1, 1992 and President and Chief Executive Officer of Heinz Pet Products Company from November 1, 1988 to June 12, 1996. Luigi Ribolla 59 Executive Vice President and President-Heinz Europe since June 12, 1996 and in charge of all Heinz affiliates in Europe, Cairo Foods Industries SAE in Egypt and Heinz development activities in Russia, Eastern Europe, the Middle East and North Africa since August 1, 1992; Senior Vice President from August 1, 1992 to June 12, 1996; Director of Heinz Mediterranean Area from 1988 to July 31, 1992.
5
Positions and Offices Held with the Company and Age (as of Principal Occupations or Name September 10, 1996) Employment During Past Five Years ---- ------------------- --------------------------------- William C. Springer 56 Executive Vice President-The Americas in charge of Heinz North America, Heinz Service Company, Heinz operations in Latin America since September 8, 1993 and in charge of Weight Watchers International, Inc., Weight Watchers Gourmet Food Company, Heinz Bakery Products Division and Ore-Ida Foods, Inc. since June 12, 1996; President of Heinz North America since June 1, 1992 and President and Chief Executive Officer of Heinz U.S.A. Division since May 1, 1989; Senior Vice President from September 8, 1993 to June 12, 1996. David R. Williams 53 Executive Vice President-Finance and Chief Financial Officer since June 12, 1996 and in charge of all Heinz affiliates and development activities in India, Pakistan and southern Africa since October 12, 1994; Senior Vice President-Finance and Chief Financial Officer from August 1, 1992 to June 12, 1996; Vice President-Finance and Chief Financial Officer from February 1, 1992 to July 31, 1992; Vice President and Corporate Controller from August 1, 1988 until January 31, 1992. Lawrence J. McCabe 61 Senior Vice President-General Counsel since June 12, 1991; Vice President-General Counsel from October 1, 1990 to June 11, 1991; Vice President- Associate General Counsel from July 1, 1982 through September 30, 1990. David W. Sculley* 50 Senior Vice President since June 1, 1989 and in charge of Weight Watchers International, Inc. from June 1, 1989 to June 12, 1996, Weight Watchers Gourmet Food Company from July 1, 1991 to June 12, 1996, and Heinz Bakery Products Division and Ore- Ida Foods, Inc. from January 1, 1992 to June 12, 1996; from June 1, 1989 to December 31, 1991, in charge of H. J. Heinz Company of Canada Ltd.; also until January 31, 1992, in charge of Heinz companies in Africa, Australia, the People's Republic of China, the Republic of Korea and Thailand.
- ------- *The Company announced on June 5, 1996 that Mr. Sculley will be leaving the Company on September 1, 1996 to launch a private investment company, The Blackburn Group, with his two brothers and several associates. 6 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. Information relating to the Company's common stock is set forth beginning on page 40 under the caption "Stock Market Information" and on page 60 in Note 12, "Quarterly Results (Unaudited)," of the Company's Annual Report to Shareholders for the fiscal year ended May 1, 1996. Such information is incorporated herein by reference. ITEM 6. SELECTED FINANCIAL DATA. The following table presents selected consolidated financial data for the Company and its subsidiaries for each of the five fiscal years 1992 through 1996. All amounts are in thousands except per share data. Prior years per share amounts have been adjusted to reflect the three-for-two stock split, which was effective October 3, 1995.
Fiscal year ended --------------------------------------------------------- May 1, May 3, April 27, April 28, April 29, 1996 1995 1994 1993 1992 (52 Weeks) (53 Weeks) (52 Weeks) (52 Weeks) (52 Weeks) ---------- ---------- ---------- ---------- ---------- Sales................... $9,112,265 $8,086,794 $7,046,738 $7,103,374 $6,581,867 Interest expense........ 277,411 210,585 149,243 146,491 134,948 Income before cumulative effect of accounting change...... 659,319 591,025 602,944 529,943 638,295 Net income.............. 659,319 591,025 602,944 396,313 638,295 Income before cumulative effect of accounting change per common share........... 1.75 1.59 1.57 1.36 1.60 Net income per common share................... 1.75 1.59 1.57 1.02 1.60 Short-term debt and current portion of long-term debt...... 1,082,169 1,074,291 439,701 1,604,355 1,724,095 Long-term debt, exclusive of current portion........ 2,281,659 2,326,785 1,727,002 1,009,381 178,388 Total assets............ 8,623,691 8,247,188 6,381,146 6,821,321 5,931,901 Cash dividends per common share............ 1.03 1/2 .94 .86 .78 .70
Results recorded in 1996 include gains related to the sale of the Weight Watchers Magazine ($0.02 per share) and the sale of two regional dry pet food product lines ($0.02 per share) and a charge for restructuring costs at certain overseas affiliates ($0.01 per share). See Note 12 to the Consolidated Financial Statements on page 60 of the Company's Annual Report to Shareholders for the fiscal year ended May 1, 1996. During 1995, the Company invested approximately $1.2 billion in acquisitions, the most significant of which was the North American pet food businesses of The Quaker Oats Company. See Note 2 to the Consolidated Financial Statements, beginning on page 48 of the Company's Annual Report to Shareholders for the fiscal year ended May 1, 1996. Results recorded in 1994 include gains from the sale of the confectionery business of Heinz Italy and the sale of Heinz U.S.A.'s Near East specialty rice business. See Note 3 to the Consolidated Financial Statements on page 50 of the Company's Annual Report to Shareholders for the fiscal year ended May 1, 1996. During 1993, the Company adopted the provisions of FAS No. 106 and elected immediate recognition of the accumulated postretirement benefit obligation for active and retired employees, resulting in an after-tax cumulative charge of $133.6 million (net of income tax benefit of $85.4 million), or $0.34 per share. In addition, the adoption of FAS No. 106 increased the company's pretax postretirement benefit expense by $16.3 million ($0.03 per share) in 1993. In 1993, restructuring charges of $192.3 million on a pretax basis ($0.30 per share) were reflected in operating income. The major components of the restructuring plan related to employee severance and relocation costs ($99.0 million) and facilities consolidation and closure costs ($73.0 million). In 1992, restructuring charges of $88.3 million on a pretax basis ($0.13 per share) were reflected in operating income to provide for the consolidation of functions, staff reductions, organizational reform and plant modernizations and closures. Results recorded in 1992 also include a pretax gain of $221.5 million on the sale of The Hubinger Company of Keokuk, Iowa to Roquette Freres, a major worldwide producer of corn starches. Hubinger is a producer of corn derivatives, including corn syrup, starch and ethanol. 7 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. This information is set forth in the Management's Discussion and Analysis section on pages 34 through 41 of the Company's Annual Report to Shareholders for the fiscal year ended May 1, 1996. Such information is incorporated herein by reference. Subsequent to year-end, the Company entered into a letter of intent to acquire substantially all of the pet food business of Martin Feed Mills Limited of Elmira, Ontario. Martin's cat and dog food lines, sold under the brand Techni-Cal, are produced and marketed throughout Canada and exported to Japan, the United Kingdom, France, Holland, Spain, the Czech Republic and other European countries. In addition, Questor Partners Fund, L.P., an unrelated national investment group, has entered into a letter of intent to acquire the brand name and ongoing canned seafood business of Bumble Bee Seafoods, Inc. of San Diego, California. The letter of intent also provides for H.J. Heinz Company, through its affiliate, Star-Kist Foods, Inc., to purchase the Bumble Bee tuna production facilities in Mayaguez, Puerto Rico; Santa Fe Springs, California and Manta, Ecuador. Star-Kist plans to co-pack tuna under the Bumble Bee label for the new Questor entity. The above transactions, if consummated, combined with the acquisition of Southern Country Foods Limited will not have a material impact on the company's results of operations or financial position in fiscal 1997. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The Consolidated Balance Sheets of the Company and its subsidiaries as of May 1, 1996 and May 3, 1995 and the related Consolidated Statements of Income, Retained Earnings and Cash Flows for the fiscal years ended May 1, 1996, May 3, 1995 and April 27, 1994, together with the related Notes to Consolidated Financial Statements, included in the Company's Annual Report to Shareholders for the fiscal year ended May 1, 1996, are incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. There is nothing to be reported under this item. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. Information relating to the Directors of the Company is set forth under the captions "Information Regarding Nominees for Election of Directors" and "Additional Information--Section 16 Beneficial Ownership Reporting Compliance" in the Company's definitive Proxy Statement in connection with the Annual Meeting of Shareholders to be held September 10, 1996. Such information is incorporated herein by reference. Information relating to the executive officers of the Company is set forth under the caption "Executive Officers of the Registrant" in Part I above. ITEM 11. EXECUTIVE COMPENSATION. Information relating to executive compensation is set forth under the caption "Executive Compensation" in the Company's definitive Proxy Statement in connection with its Annual Meeting of Shareholders to be held September 10, 1996. Such information is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. Information relating to the ownership of equity securities of the Company by certain beneficial owners and management is set forth under the captions "Security Ownership of Certain Beneficial Owners" and "Security Ownership of Management" in the Company's definitive Proxy Statement in connection with its Annual Meeting of Shareholders to be held September 10, 1996. Such information is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. Information relating to certain relationships with a beneficial shareholder and certain related transactions is set forth under the caption "Certain Business Relationships" and "Additional Information--Transactions with Beneficial Shareholders" in the Company's definitive Proxy Statement in connection with its Annual Meeting of Shareholders to be held September 10, 1996. Such information is incorporated herein by reference. 8 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. (a)(1) The following financial statements and report included in the Company's Annual Report to Shareholders for the fiscal year ended May 1, 1996 are incorporated herein by reference: Consolidated Balance Sheets as of May 1, 1996 and May 3, 1995 Consolidated Statements of Income for the fiscal years ended May 1, 1996, May 3, 1995 and April 27, 1994 Consolidated Statements of Retained Earnings for the fiscal years ended May 1, 1996, May 3, 1995 and April 27, 1994 Consolidated Statements of Cash Flows for the fiscal years ended May 1, 1996, May 3, 1995 and April 27, 1994 Notes to Consolidated Financial Statements Report of Independent Accountants of Coopers & Lybrand L.L.P. dated June 18, 1996, on the Company's consolidated financial statements for the fiscal years ended May 1, 1996, May 3, 1995 and April 27, 1994 (2) The following report and schedule is filed herewith as a part hereof: Report of Independent Accountants of Coopers & Lybrand L.L.P. dated June 18, 1996, on the Company's consolidated financial statement schedule filed as a part hereof for the fiscal years ended May 1, 1996, May 3, 1995 and April 27, 1994. Schedule II (Valuation and Qualifying Accounts and Reserves) for the three fiscal years ended May 1, 1996, May 3, 1995 and April 27, 1994. All other schedules are omitted because they are not applicable or the required information is included herein or is shown in the consolidated financial statements or notes thereto incorporated herein by reference. (3) Exhibits required to be filed by Item 601 of Regulation S-K are listed below and are filed as a part hereof. Documents not designated as being incorporated herein by reference are filed herewith. The paragraph numbers correspond to the exhibit numbers designated in Item 601 of Regulation S-K. 3(i) The Company's Articles of Amendment dated July 13, 1994, amending and restating the Company's amended and restated Articles of Incorporation in their entirety are incorporated herein by reference to Exhibit 3(i) to the Company's Annual Report on Form 10-K for the fiscal year ended April 27, 1994. 3(ii) The Company's By-Laws, as amended effective October 12, 1994 are incorporated herein by reference to Exhibit 3(ii) to the Company's Annual Report on Form 10-K for the fiscal year ended May 3, 1995. 4. Except as set forth below, there are no instruments with respect to long-term debt of the Company that involve indebtedness or securities authorized thereunder exceeding 10 percent of the total assets of the Company and its subsidiaries on a consolidated basis. The Company agrees to file a copy of any instrument or agreement defining the rights of holders of long-term debt of the Company upon request of the Securities and Exchange Commission. (a) Form of Indenture between the Company and The First National Bank of Chicago dated as of July 15, 1992, is incorporated herein by reference to Exhibits 4(a) and 4(c) to the Company's Registration Statement on Form S-3 (Reg. No. 33-46680) and the supplements to such Indenture are incorporated herein by reference to the Company's Form 8-Ks dated September 21, 1992, October 29, 1992 and January 27, 1993 relating to the Company's $250,000,000 5 1/2% Notes due 1997, $300,000,000 6 3/4% Notes due 1999 and $200,000,000 6 7/8% Notes due 2003, respectively. 10(a) Permit No. 408 (lease) granted by the City of Los Angeles to Star- Kist Foods, Inc. dated September 6, 1979 for premises located at Terminal Island, California is incorporated herein by reference to Exhibit 10(e) to the Company's Annual Report on Form 10-K for the fiscal year ended April 29, 1981. 9 (b) Lease of Land in American Samoa, dated as of September 17, 1983, by and between the American Samoa Government and Star-Kist Samoa, Inc. is incorporated herein by reference to Exhibit 10(m) to the Company's Annual Report on Form 10-K for the fiscal year ended May 2, 1984. (c) Management contracts and compensatory plans: (i) 1986 Deferred Compensation Program for H. J. Heinz Company and affiliated companies, as amended and restated in its entirety effective December 6, 1995 (ii) H. J. Heinz Company's 1984 Stock Option Plan, as amended, is incorporated herein by reference to Exhibit 10(n) to the Company's Annual Report on Form 10-K for the fiscal year ended May 2, 1990 (iii) H. J. Heinz Company's 1987 Stock Option Plan, as amended, is incorporated herein by reference to Exhibit 10(o) to the Company's Annual Report on Form 10-K for the fiscal year ended May 2, 1990 (iv) H. J. Heinz Company's 1990 Stock Option Plan is incorporated herein by reference to Appendix A to the Company's Proxy Statement dated August 3, 1990 (v) H. J. Heinz Company's 1994 Stock Option Plan is incorporated herein by reference to Appendix A to the Company's Proxy Statement dated August 5, 1994 (vi) H. J. Heinz Company Supplemental Executive Retirement Plan, as amended, is incorporated herein by reference to Exhibit 10(c)(ix) to the Company's Annual Report on Form 10-K for the fiscal year ended April 28, 1993 (vii) H. J. Heinz Company Executive Deferred Compensation Plan is incorporated herein by reference to Exhibit 10(c)(x) to the Company's Annual Report on Form 10-K for the fiscal year ended April 27, 1994 (viii) H. J. Heinz Company Incentive Compensation Plan is incorporated herein by reference to Appendix B to the Company's Proxy Statement dated August 5, 1994 (ix) H. J. Heinz Company Stock Compensation Plan for Non-Employee Directors is incorporated herein by reference to Appendix A to the Company's Proxy Statement dated August 3, 1995 11. Computation of net income per share. 13. Pages 34 through 62 of the H. J. Heinz Company Annual Report to Shareholders for the fiscal year ended May 1, 1996, portions of which are incorporated herein by reference. Those portions of the Annual Report to Shareholders that are not incorporated herein by reference shall not be deemed to be filed as a part of this Report. 21. Subsidiaries of the Registrant. 23. The following Exhibit is filed by incorporation by reference to Item 14(a)(2) of this Report: (a) Consent of Coopers & Lybrand L.L.P. 24. Powers-of-attorney of the Company's directors. 27. Financial Data Schedule. Copies of the exhibits listed above will be furnished upon request to holders or beneficial holders of any class of the Company's stock, subject to payment in advance of the cost of reproducing the exhibits requested. (b) There have been no reports filed on Form 8-K during the last fiscal quarter of the period covered by this Report. 10 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized, on July 26, 1996. H. J. HEINZ COMPANY (Registrant) /s/ David R. Williams By...................................... DAVID R. WILLIAMS Executive Vice President-Finance and Chief Financial Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated, on July 26, 1996. Signature Capacity /s/ Anthony J. F. O'Reilly ............................. Chairman of the Board and ANTHONY J. F. O'REILLY Chief Executive Officer (Principal Executive Officer) /s/ David R. Williams ............................. Executive Vice President-Finance and DAVID R. WILLIAMS Chief Financial Officer (Principal Financial Officer) /s/ Tracy E. Quinn Corporate Controller ............................. (Principal Accounting TRACY E. QUINN Officer) Anthony J. F. O'Reilly Director Joseph J. Bogdanovich Director Nicholas F. Brady Director Richard M. Cyert Director Thomas S. Foley Director Edith E. Holiday Director Samuel C. Johnson Director William R. Johnson Director Donald R. Keough Director Albert Lippert Director /s/ Lawrence J. McCabe Lawrence J. McCabe Director By................................... Luigi Ribolla Director LAWRENCE J. MCCABE Herman J. Schmidt Director Director and Attorney-in-Fact David W. Sculley Director Eleanor B. Sheldon Director William P. Snyder III Director William C. Springer Director S. Donald Wiley Director David R. Williams Director 11 REPORT OF INDEPENDENT ACCOUNTANTS The Shareholders H. J. Heinz Company: Our report on the consolidated financial statements of H. J. Heinz Company and Subsidiaries has been incorporated by reference in this Annual Report on Form 10-K from the Company's Annual Report to Shareholders for the fiscal year ended May 1, 1996 and appears on page 62 therein. In connection with our audits of such financial statements, we have also audited the related financial statement schedule listed in Item 14(a) of this Annual Report on Form 10-K. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein. Coopers & Lybrand L.L.P. Pittsburgh, PA June 18, 1996 --------------- CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the Registration Statements of H. J. Heinz Company on Form S-8 (Registration Nos. 2-51719, 2-45120, 33- 00390, 33-19639, 33-32563, 33-42015, 33-55777 and 33-62623) of our reports dated June 18, 1996, on our audits of the consolidated financial statements and financial statement schedule of H. J. Heinz Company and Subsidiaries as of May 1, 1996 and May 3, 1995 and for the fiscal years ended May 1, 1996, May 3, 1995 and April 27, 1994, which reports are included or incorporated by reference in this Annual Report on Form 10-K. Coopers & Lybrand L.L.P. Pittsburgh, PA July 26, 1996 12 SCHEDULE II H. J. HEINZ COMPANY AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS AND RESERVES FISCAL YEARS ENDED MAY 1, 1996, MAY 3, 1995 AND APRIL 27, 1994 (THOUSANDS OF DOLLARS)
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 1, 1996: Reserves deducted in the balance sheet from the assets to which they apply: Receivables......... $ 16,309 $ 7,254 $ -- $ 6,265(1) $ 17,298 ======== ======= ====== ======= ======== Investments, advances and other assets.............. $ 7,466 $ -- $ -- $ 1,602 $ 5,864 ======== ======= ====== ======= ======== Goodwill............ $163,793 $48,583 $ -- $ 683 $211,693 ======== ======= ====== ======= ======== Other intangibles... $117,430 $30,519 $ -- $ 6,063(1) $141,886 ======== ======= ====== ======= ======== Deferred tax assets (2)................. $ 49,487 $ 3,195 $ -- $17,088 $ 35,594 ======== ======= ====== ======= ======== Fiscal year ended May 3, 1995: Reserves deducted in the balance sheet from the assets to which they apply: Receivables......... $ 15,407 $ 5,135 $ -- $ 4,233(1) $ 16,309 ======== ======= ====== ======= ======== Investments, advances and other assets.............. $ 19,841 $ -- $ -- $12,375(3) $ 7,466 ======== ======= ====== ======= ======== Goodwill............ $127,708 $33,970 $ -- $(2,115) $163,793 ======== ======= ====== ======= ======== Other intangibles... $ 85,862 $31,441 $ -- $ (127) $117,430 ======== ======= ====== ======= ======== Deferred tax assets (4)................. $ 28,888 $28,178 $ -- $ 7,579 $ 49,487 ======== ======= ====== ======= ======== Fiscal year ended April 27, 1994: Reserves deducted in the balance sheet from the assets to which they apply: Receivables......... $ 16,299 $ 4,535 $ -- $ 5,427(1) $ 15,407 ======== ======= ====== ======= ======== Investments, advances and other assets.............. $ 20,165 $ -- $ -- $ 324 $ 19,841 ======== ======= ====== ======= ======== Goodwill............ $115,631 $30,275 $ -- $18,198(1) $127,708 ======== ======= ====== ======= ======== Other intangibles... $ 72,673 $17,396 $ -- $ 4,207(1) $ 85,862 ======== ======= ====== ======= ======== Deferred tax assets (5)................. $ 85,071 $ 4,655 $ -- $60,838 $ 28,888 ======== ======= ====== ======= ========
Notes: (1) Principally reserves on assets sold, written-off or reclassified. (2) The net change in the valuation allowance for deferred tax assets was a decrease of $13.9 million. The decrease was primarily due to the utilization of loss carryforwards ($4.6 million) and recognition of the realizability of certain other deferred tax assets in future years ($12.5 million). An increase in the valuation allowance related to the deferred tax asset for foreign tax credit carryforwards ($1.7 million) and loss carryforwards ($1.5 million) partially offset the decrease. See Note 4 to the Consolidated Financial Statements on pages 51 and 52 of the Company's Annual Report to Shareholders for the fiscal year ended May 1, 1996. (3) Represents amounts reclassified as a result of consolidation of certain fishing vessel operations. (4) The net change in the valuation allowance for deferred tax assets was an increase of $20.6 million. The increase is primarily due to increases in the valuation allowance related to additional deferred tax assets for foreign tax credit carryforwards ($25.3 million) and loss carryforwards ($2.9 million). This increase was partially offset by the recognition of the realizability of certain other deferred tax assets in future years ($3.1 million) and the utilization of loss carryforwards ($4.5 million). See Note 4 to the Consolidated Financial Statements on pages 51 and 52 of the Company's Annual Report to Shareholders for the fiscal year ended May 1, 1996. (5) The net change in the valuation allowance for deferred tax assets was a decrease of $56.2 million. The decrease was primarily due to the utilization of loss carryforwards ($2.8 million) and recognition of the realizability of certain other deferred tax assets in future years ($57.3 million). An increase in the valuation allowance related to the deferred tax asset for loss carryforwards ($4.7 million) partially offset the decrease. See Note 4 to the Consolidated Financial Statements on pages 51 and 52 of the Company's Annual Report to Shareholders for the fiscal year ended May 1, 1996. EXHIBIT INDEX Exhibits required to be filed by Item 601 of Regulation S-K are listed below and are filed as a part hereof. Documents not designated as being incorporated herein by reference are filed herewith. The paragraph numbers correspond to the exhibit numbers designated in Item 601 of Regulation S-K. EXHIBIT 3(i) The Company's Articles of Amendment dated July 13, 1994, amending and restating the Company's amended and restated Articles of Incorporation in their entirety are incorporated herein by reference to Exhibit 3(i) to the Company's Annual Report on Form 10-K for the fiscal year ended April 27, 1994. 3(ii) The Company's By-Laws, as amended effective October 12, 1994 are incorporated herein by reference to Exhibit 3(ii) to the Company's Annual Report on Form 10-K for the fiscal year ended May 3, 1995. 4. Except as set forth below, there are no instruments with respect to long-term debt of the Company that involve indebtedness or securities authorized thereunder exceeding 10 percent of the total assets of the Company and its subsidiaries on a consolidated basis. The Company agrees to file a copy of any instrument or agreement defining the rights of holders of long-term debt of the Company upon request of the Securities and Exchange Commission. (a) Form of Indenture between the Company and The First National Bank of Chicago dated as of July 15, 1992, is incorporated herein by reference to Exhibits 4(a) and 4(c) to the Company's Registration Statement on Form S-3 (Reg. No. 33-46680) and the supplements to such Indenture are incorporated herein by reference to the Company's Form 8-Ks dated September 21, 1992, October 29, 1992 and January 27, 1993 relating to the Company's $250,000,000 5 1/2% Notes due 1997, $300,000,000 6 3/4% Notes due 1999 and $200,000,000 6 7/8% Notes due 2003, respectively. 10(a) Permit No. 408 (lease) granted by the City of Los Angeles to Star-Kist Foods, Inc. dated September 6, 1979 for premises located at Terminal Island, California is incorporated herein by reference to Exhibit 10(e) to the Company's Annual Report on Form 10-K for the fiscal year ended April 29, 1981. (b) Lease of Land in American Samoa, dated as of September 17, 1983, by and between the American Samoa Government and Star-Kist Samoa, Inc. is incorporated herein by reference to Exhibit 10(m) to the Company's Annual Report on Form 10-K for the fiscal year ended May 2, 1984. (c) Management contracts and compensatory plans: (i)1986 Deferred Compensation Program for H. J. Heinz Company and affiliated companies, as amended and restated in its entirety effective December 6, 1995 (ii)H. J. Heinz Company's 1984 Stock Option Plan, as amended, is incorporated herein by reference to Exhibit 10(n) to the Company's Annual Report on Form 10-K for the fiscal year ended May 2, 1990 (iii)H. J. Heinz Company's 1987 Stock Option Plan, as amended, is incorporated herein by reference to Exhibit 10(o) to the Company's Annual Report on Form 10-K for the fiscal year ended May 2, 1990 (iv)H. J. Heinz Company's 1990 Stock Option Plan is incorporated herein by reference to Appendix A to the Company's Proxy Statement dated August 3, 1990 (v)H. J. Heinz Company's 1994 Stock Option Plan is incorporated herein by reference to Appendix A to the Company's Proxy Statement dated August 5, 1994 (vi)H. J. Heinz Company Supplemental Executive Retirement Plan, as amended, is incorporated herein by reference to Exhibit 10(c)(ix) to the Company's Annual Report on Form 10-K for the fiscal year ended April 28, 1993 EXHIBIT (vii)H. J. Heinz Company Executive Deferred Compensation Plan is incorporated herein by reference to Exhibit 10(c)(x) to the Company's Annual Report on Form 10-K for the fiscal year ended April 27, 1994 (viii)H. J. Heinz Company Incentive Compensation Plan is incorporated herein by reference to Appendix B to the Company's Proxy Statement dated August 5, 1994 (ix)H. J. Heinz Company Stock Compensation Plan for Non-Employee Directors is incorporated herein by reference to Appendix A to the Company's Proxy Statement dated August 3, 1995 11.Computation of net income per share. 13.Pages 34 through 62 of the H. J. Heinz Company Annual Report to Shareholders for the fiscal year ended May 1, 1996, portions of which are incorporated herein by reference. Those portions of the Annual Report to Shareholders that are not incorporated herein by reference shall not be deemed to be filed as a part of this Report. 21.Subsidiaries of the Registrant. 23.The following Exhibit is filed by incorporation by reference to Item 14(a)(2) of this Report: (a)Consent of Coopers & Lybrand L.L.P. 24.Powers-of-attorney of the Company's directors. 27.Financial Data Schedule. EX-10.(C)(I) 2 DEFERRED COMPENSATION PLAN Exhibit 10(c)(i) 1986 DEFERRED COMPENSATION PROGRAM FOR EXECUTIVES OF H. J. HEINZ COMPANY AND AFFILIATED COMPANIES (AS AMENDED JUNE 1, 1991 AND AMENDED AND RESTATED IN ITS ENTIRETY, DECEMBER 6, 1995) 1. Purpose The purpose of this Program is to provide Eligible Executives with an opportunity to defer current income. 2. Definitions 2.1 "Account" shall mean a deferred compensation reserve account established for bookkeeping purposes only in the financial accounting records of the Corporation which reflect Awards deferred pursuant to Section 3 plus Rollovers pursuant to Section 4 plus earnings credited at the applicable Crediting Rate. 2.2 "Age" shall mean the Participant's attained age in years. 2.3 "Award" shall mean, for any fiscal year, the amount granted to an Eligible Executive of the Company for that year and, in the absence of a Deferral Election with respect to such Award, payable to him in the succeeding fiscal year under MIP and LTIP. 2.4 "Board" shall mean the Board of Directors of the Corporation. 2.5 "Beneficiary" shall mean the person or entity designated by the Participant or the Spouse of a Participant in a time and manner determined by the Committee to receive Benefits under this Program. If no Beneficiary designation by a Participant is in effect, the Beneficiary shall be the Participant's Spouse, if any, or if none, then the Participant's estate. If a Participant's Spouse makes no Beneficiary designation, then the Beneficiary shall be such Spouse's estate. A Participant or his surviving Spouse may revoke or change their Beneficiary designation at any time in the manner determined from time to time by the Committee. 2 2.6 "Benefit" shall mean any payment made from an Account to a Participant or his Beneficiary. Such Benefit shall be payable in United States currency by a check or draft drawn upon an account of the Company at any United States domestic bank. Such check or draft shall be mailed by regular first class United States mail to the latest address provided by the Participant or his Beneficiary no later than the date specified for such Benefit to be paid pursuant to the terms of this Program. 2.7 "Committee" shall mean the Management Development and Compensation Committee of the Board and its designee or their successors. 2.8 "Company" shall mean H. J. Heinz Company or any company or corporation affiliated with H. J. Heinz Company. 2.9 "Corporation" shall mean H. J. Heinz Company, a Pennsylvania corporation, and any successor thereto by merger, purchase or otherwise. 2.10 "Crediting Rate" shall mean for any Plan Year the greater of 150% of Moody's Composite Bond Index or 15% per annum until such time as periodic Benefits begin pursuant to Section 6, Section 7 or Section 8, whereupon the Crediting Rate shall be 15% per annum. No crediting of earnings at the applicable Crediting Rate will be made after the last day of the month in which the event occurs which causes a single sum Benefit payment to become payable pursuant to Section 7 or Section 8. Crediting of earnings shall commence on July 1, 1987 and continue each July 1 thereafter to a Participant's Account up to the date a Benefit is payable from such Account. Once the first periodic Benefit payment from an Account is made, crediting of earnings on such Account at the applicable Crediting Rate shall be accrued annually from the date such first periodic Benefit payment is made. 2.11 "Deferral Election" shall mean the signing of the irrevocable deferral election form authorized by the Committee under which the Eligible Executive elects to 3 defer all or a portion of his Award pursuant to Section 3, or elects to make a complete or partial Rollover Election pursuant to Section 4 (Rollover Election). 2.12 "Deferral Date" shall mean July 1, 1986 with respect to any Awards deferred under a Deferral Election entered into by an Eligible Executive for a fiscal year 1986 Award and a Rollover, and July 1, 1987 for a fiscal year 1987 Award deferred under a Deferral Election. 2.13 "Eligible Executive" shall mean an employee of the Company who is eligible for MIP and/or LTIP as of April 30, 1986 and who has not attained age 65 by such date, provided, however, that the Committee, in its sole discretion, may designate any employee of the Company as an Eligible Executive. 2.14 "MIP" and/or "LTIP" shall mean the Company's Management Incentive Plan and the Company's Long Term Incentive Plan, respectively, existing as of July 1, 1986 or as each may be amended from time to time thereafter. 2.15 "Moody's Composite Bond Index" shall mean the Monthly Average of the Composite Yield on Seasoned Corporate Bonds as published by Moody's Investors Service, Inc. or any successor thereto for the calendar month which ends two months prior to the beginning of any applicable Plan Year. If such index is no longer published, the Committee, in its sole discretion, may use any seasoned United States corporate bond index published generally in the United States. 2.16 "Participant" shall mean an Eligible Executive who elects to defer all or a portion of his Award pursuant to Section 3 or elects a Rollover pursuant to Section 4. 2.17 "Plan Year" shall mean the twelve months beginning July 1 through June 30 commencing July 1, 1986 and each twelve month period thereafter so long as the Program remains in existence. 4 2.18 "Program" shall mean the 1986 Deferred Compensation Program for Executives of H. J. Heinz Company and Affiliated Companies. 2.19 "Retirement" shall mean attainment of age 55 or completion of 30 years of continuous service within the meaning of the applicable provisions of the H. J. Heinz Retirement System as in effect on the date of the Participant's Deferral Election. 2.20 "Rollover" shall mean amounts credited pursuant to Section 4 from previously deferred cash awards together with interest accrued thereon under MIP and/or LTIP to a Participant's Account. 2.21 "Spouse" shall mean the person who is legally married to the Participant at the time of the Participant's death and is not then subject to an agreement or court decree of separate maintenance or a trust in which such person is the sole income Beneficiary. 3. Deferral of Awards 3.1 An Eligible Executive may elect, subject to section 3.3, to defer whole dollars or a percentage of his Award as follows: (a) up to 100% of his fiscal year 1986 Award, if any; and/or (b) up to 100% of his fiscal year 1987 Award, if any. 3.2 Such election shall be made by executing an irrevocable Deferral Election with the Company on or before April 30, 1986. 3.3 The minimum amount of an Award which an Eligible Executive may defer in any year shall be $5,000. Deferral Elections of less than $5,000 shall be void and of no effect. 5 4. Rollovers of MIP and/or LTIP 4.1 An Eligible Executive may make an irrevocable one-time election in whole dollars for the Rollover of all or a portion, but not less than $5,000, of his previously deferred cash awards plus interest accrued thereon under MIP and/or LTIP as of June 30, 1986 including such amounts the Eligible Executive previously elected to defer with respect to F.Y. 1986 and/or F.Y. 1987 MIP and/or LTIP. Rollovers shall become part of a Participant's Account and shall be subject to the rules of the Program. A Rollover election may be made by an Eligible Executive independent of the deferral of an Award pursuant to Section 3. 5. Death Prior to Deferral Date 5.1 If a Participant dies prior to a Deferral Date for any Award or Rollover, the Deferral Election or Rollover Election with respect to such Award or Rollover shall be void and of no effect. The Company's sole obligation in such circumstance with respect to an Award shall be to pay such Award to the Participant's estate or personal legal representative. Rollover amounts transferred pursuant to this Program will be paid out in accordance with the rules of MIP and/or LTIP as if the Rollover election had never taken place. 6. Participant's Benefit at Age 65 6.1 A Benefit shall be payable from a Participant's Account in 15 equal annual installments beginning on the 1st day of the month next following the day such Participant attains age 65 and on the same day of each year thereafter until all annual installments have been paid. Each installment shall be deducted from the Participant's Account and shall be in an amount sufficient to exhaust the Participant's Account together with interest compounded at 15% per annum on the declining Account balance. The amount of each installment shall be calculated by dividing a Participant's Account as of the date installments commence by 6.72447561. If a Participant dies after 6 attaining age 65, his Account at his date of death shall be paid in accordance with Section 8.4. 7. Benefits at Termination of Employment 7.1 A Participant whose employment with the Company has terminated prior to attaining age 50 or becoming eligible for Retirement, for any reason whatsoever, except for death, shall receive his Account in a single sum as soon as practicable following the date of his termination of employment. 7.2 If such Participant has attained age 50 or is eligible for Retirement at the time of his termination of employment for any reason whatsoever except for death, Benefits shall be payable pursuant to Section 6 beginning the first day of the month next following the day such Participant attains age 65. 7.3 Notwithstanding Section 2.10, if a Participant whose employment with the Company has terminated pursuant to Section 7.1 in the first year after any Deferral Date for any Award or Rollover, the Crediting Rate applied to such Award or Rollover will be reduced to zero, and if such Participant's termination of employment occurs for any reason, except for death, in the second year after any Deferral Date for any Award or Rollover, the Crediting Rate will be reduced to 5% per annum. If such Participant's termination of employment occurs for any reason whatsoever except for death after two years from any Deferral Date of any Award or Rollover, the Crediting Rate shall be the same as stated in Section 2.10. 7.4 Notwithstanding anything to the contrary contained herein: (a) if a Participant's employment with the Company terminates because of the sale of an affiliated corporation, division or other portion of the business to a party that is not affiliated with the Company, the Participant may continue to receive the benefits of the Program that he or she would otherwise have received had the Participant 7 continued to be employed by an affiliate of the Company, provided the Board of Directors or the Executive Committee of the Board of Directors specifically authorizes Participant to continue to receive the benefits of the Program following the disposition of the affiliate, division or other business in which such Participant was employed. (b) if the Committee determines that a Participant's employment with the Company has been terminated involuntarily without cause before meeting the requirements of Section 7.2, the Committee may specify that the Participant shall continue to receive the benefits of the Program that he or she would otherwise have received had the Participant continued to be employed by the Company. Any such authorization shall be made on a case by case basis in the sole discretion of the Committee and such authorization in one case shall not be precedent for authorization in any other case. 8. Death Benefits 8.1 If a Participant dies prior to age 65 and is not eligible for Retirement, his Beneficiary shall receive a single sum as soon as practicable following his date of death equal to the greater of: (a) three times the sum of Awards deferred under Section 3 and any Rollover pursuant to Section 4; or (b) the Participant's Account at his date of death. 8.2 If a Participant dies prior to age 65 and is eligible for Retirement and his Beneficiary is his Spouse, then a Benefit of 15 annual payments calculated pursuant to Section 6 will be paid, commencing as soon as practicable, to such Spouse. The Spouse's Benefit will be based on the greater of: 8 (a) three times the sum of Awards deferred under Section 3 and any Rollover pursuant to Section 4; or (b) the Participant's Account at his date of death. 8.3 If a Participant dies prior to age 65 and is eligible for Retirement and his Beneficiary is not his Spouse, then a single sum Benefit will be paid equal to the greater of: (a) three times the sum of Awards deferred under Section 3 and any Rollover pursuant to Section 4; or (b) The Participant's Account at his date of death. 8.4 If a Participant dies after age 65, his Beneficiary, if such Beneficiary is the Participant's Spouse, shall receive the remainder of the 15 annual installments pursuant to Section 6. If the Participant's Beneficiary is other than his Spouse, a single sum payment equal to the Participant's Account at his date of death shall be paid to such Beneficiary as soon as practicable. 8.5 In the event of the death of a Participant's Spouse before the 15 annual installments pursuant to Section 6 have been completed, such Spouse's Beneficiary shall receive a single sum Benefit equal to the Account balance at the Spouse's date of death as soon as practicable. 9. Administration 9.1 The Committee shall have discretionary power to administer and interpret the Program (including the power to resolve ambiguities), to establish rules to further the purposes of the Program and to take any other action necessary for the proper operation of the Program. 9.2 The Board, in its sole discretion and upon such terms as it may prescribe, may permit any company or 9 corporation directly or indirectly controlled by the Corporation to participate in the Program for such periods as the Committee may determine. 9.3 The Committee shall provide adequate written notice to any Participant or Beneficiary whose claim for benefits under this Program has been denied setting forth specific reasons for such denial. A Participant or Beneficiary whose claim has been denied shall be entitled to appeal the denial of his claim by providing a written statement of his position to the Committee not later than 60 days after receipt of the notification of denial of the claim. The Committee shall within 60 days after receipt of such notice communicate to the claimant its decision in writing, which decision shall be final and binding upon all parties. 9.4 All acts and decisions of the Committee shall be final and binding upon all Participants, Beneficiaries, heirs, estates, personal legal representatives and their successors. 9.5 The Committee may, in its sole discretion, reduce the Crediting Rate for future Plan Years in the event of material adverse Federal, state or local tax law changes which increase the cost of the Program to the Corporation. 9.6 Prior to paying any Benefit under this Program, the Committee may require any Participant, Beneficiary, estate, heir, or personal legal representative to provide information to the Committee. The Committee may withhold payment of any Benefit under this Program until it receives all such information including, but not limited to certified copies of birth or death certificates and marriage licenses. 10. Termination and Amendment of the Program 10.1 The Board may, in its sole discretion, terminate or amend this Program at any time. In the event the Program and the Deferral and/or Rollover Elections are terminated with respect to a Participant, the 10 Participant shall receive a single sum payment equal to his Account, less any Benefits already paid to a Participant under this Program. However, if the Participant or a Spouse is receiving a Benefit pursuant to Section 6, Section 7 or Section 8 such Benefit shall continue unchanged. Any single sum payment to a Participant shall be made as soon as practicable following the date the Program is terminated as to such Participant and shall be in lieu of any other Benefit which may be payable to the Participant under this Program. 11. Employment Not Guaranteed 11.1 The existence of this Program or the execution of a Deferral or Rollover Election does not constitute a contract for continued employment between an Eligible Executive or a Participant and the Company. The Company reserves the right to modify an Eligible Executive's or Participant's compensation and to terminate the employment of an Eligible Executive or a Participant for any reason and at any time, notwithstanding the existence of this Program or of a Deferral or Rollover Election. 12. Assignment of Benefits 12.1 The right to receive any Benefit under this Program may not be pledged, hypothecated, transferred, or assigned nor is it subject to garnishment, attachment or other legal or equitable process. 13. Tax Withholding 13.1 The Company shall deduct from all Benefits paid under this Program all applicable Federal, state, local and foreign taxes required by law to be withheld. Participants or Beneficiaries under this Program must provide all information required by law in order to report payments to any taxing jurisdiction. 11 14. Tax Consequences of Program 14.1 The Company makes no representations or warranties with respect to any tax consequences of the Program. Participants are advised to consult their own estate planner and tax advisor concerning the Federal, state and local income, estate and inheritance tax consequences of the Program especially in the event such tax laws change in the future. 15. Life Insurance and Participant's Health 15.1 The current health condition of a Participant will not prevent participation in the Program. 15.2 The Company, in its sole discretion, may, but shall not be required to, purchase life insurance policies on the life of a Participant in such amounts and in such forms as the Company may choose. The Company will be the owner and beneficiary of such life insurance policies. Neither the Participant, his Beneficiary, estate, heirs, or personal legal representatives shall have any interest whatsoever in such life insurance policies. As a condition to participating in this Program, a Participant must complete an accurate, truthful health statement and at the request of the Company shall submit to medical examinations and supply information and execute documents as may be required by the insurance company or companies to whom the Company has applied for insurance. 16. Misrepresentations by Participant 16.1 The Participant will be required to warrant that all information supplied to the Company and/or insurance companies is accurate and complete. If a Participant makes or has made any material misrepresentation or omission which results in a cost or loss to the Company, the Company in its sole discretion may pay to the Participant or his Beneficiary an amount equal to his Award and/or Rollover under this Program, less any Benefits already paid. 12 17. Suicide 17.1 Should a Participant commit suicide within two years after the Deferral Date of any Award or Rollover, the Company's only obligation under this Program will be to pay the Award and/or Rollover to the Beneficiary, less any Benefits already paid. 18. Rights in Company Assets 18.1 Nothing in this Program or in a Deferral Election shall require the Company to segregate any monies or assets from its general funds, or to create a trust or make any special deposit for any Benefits to be paid to any Participant, Beneficiary, heir, or personal legal representative. 18.2 The rights of a Participant, Beneficiary, heir, or personal legal representative under this Program shall be solely those of an unsecured creditor of the Company. The maintaining of an Account for a Participant by the Corporation for bookkeeping purposes creates no security interest in any assets of the Company. Any insurance policy or other asset acquired or held by the Corporation shall not be deemed to be held under any trust for the benefit of the Participant, his Beneficiaries, his heirs, his estate, or his personal legal representatives or to be security for the performance of the obligations of the Company under this Program, and shall be, and remain, a general, unpledged and unrestricted asset of the Company. 19. Vesting 19.1 All Awards deferred and Rollovers transferred to a Participant's Account shall be vested and will not be subject to forfeiture for any reason. 13 20. Severability 20.1 The invalidity or unenforceability of any provision of this Program or of a Deferral Election and Rollover Election shall in no way affect the validity or enforceability of any other provision of this Program. 21. Captions 21.1 The captions at the head of a section or paragraph of this Program are designed for convenience of reference only and are not to be resorted to for the purpose of interpreting any provision of this Program. 22. Pronouns 22.1 The masculine pronoun shall mean the feminine pronoun and the singular shall include the plural wherever appropriate. 23. Construction 23.1 This Program and any Deferral Election or Rollover Election shall be governed by the laws of the Commonwealth of Pennsylvania. EX-11 3 COMPUTATION OF NET INCOME PER SHARE EXHIBIT 11 H. J. HEINZ COMPANY AND SUBSIDIARIES COMPUTATION OF NET INCOME PER SHARE (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Fiscal Year Ended ----------------------------- May 1, May 3, April 27, 1996 1995 1994 --------- --------- --------- Primary income per share: Net income..................................... $ 659,319 $ 591,025 $ 602,944 Less-preferred dividends....................... 56 64 71 --------- --------- --------- Net income applicable to common stock.......... $ 659,263 $ 590,961 $ 602,873 ========= ========= ========= Average common shares outstanding and common stock equivalents........................ 377,156 372,806 385,218 ========= ========= ========= Net income per share--primary.................. $ 1.75 $ 1.59 $ 1.57 ========= ========= ========= Fully diluted income per share: Net income..................................... $ 659,319 $ 591,025 $ 602,944 ========= ========= ========= Average common shares outstanding and common stock equivalents...................... 377,156 372,806 385,218 Additional common shares assuming: Conversion of $1.70 third cumulative preferred stock.............................. 451 511 626 Additional common shares assuming options were exercised at the year-end market price...... 1,491 1,501 130 --------- --------- --------- 379,098 374,818 385,974 ========= ========= ========= Net income per share--fully diluted............ $ 1.74 $ 1.58 $ 1.56 ========= ========= =========
Note: Prior years share and per share amounts have been adjusted to reflect the three-for-two stock split, which was effective October 3, 1995. EX-13 4 H.J. HEINZ ANNUAL REPORT Exhibit 13 MANAGEMENT'S DISCUSSION AND ANALYSIS H.J. Heinz Company and Subsidiaries - ------------------------------------------------------------------------------ H.J. Heinz Company achieved record sales and earnings for 1996. Sales increased 13% to over $9.11 billion and earnings per share increased 10% to $1.75 per share. Financial results for 1996 benefited from improved sales volumes and prices in both domestic and overseas markets. The record $1.18 billion invested in acquisitions in 1995 has strengthened the company's core product categories and expanded growth prospects in emerging markets around the world. During 1996, the company continued to reposition its portfolio of businesses through strategic acquisitions and divestitures. Over the course of the last two fiscal years (1995 and 1996), the company has made the following acquisitions: in pet food--the North American pet food business of The Quaker Oats Company (the "Pet Food Business"), Nature's Recipe Pet Food product line, and Alimentos Pilar S.A. of Argentina; in weight control--The All American Gourmet Company, maker of The Budget Gourmet brand of frozen meals and side dishes; in tuna--a majority interest in Indian Ocean Tuna Ltd., located in the Seychelles, and the Mareblu brand in Italy; in infant foods--a majority interest in PMV/Zabreh in the Czech Republic, an additional investment in Kecskemeti Konzervgyar RT in Hungary, the Family Products Division of Glaxo India, Ltd., the Farley's infant foods and adult nutrition business, Fattoria Scaldasole S.p.A. in Italy, and Earth's Best, Inc., a leading marketer of organic infant foods in the U.S.; and in foodservice--Borden's foodservice group in the U.S., Britwest Ltd. in the United Kingdom, the Craig's brand of jams and dressings in New Zealand, and Dega, a foodservice company in Italy. Divestitures of non-strategic businesses include: a domestic bulk oil business, an overseas sweetener business, the Weight Watchers Magazine and two regional dry pet food product lines. Acquisitions and divestitures affect year-to-year comparisons of both sales and operating income. Continued implementation of cost reduction and productivity enhancements has also added to the strong 1996 financial performance. On September 12, 1995, the Board of Directors authorized a three-for-two common stock split, effective October 3, 1995. There was no adjustment in the par value or the total number of authorized common shares. All common share and per common share data in this report reflect the October 3, 1995 three-for-two common stock split. - ------------------------------------------------------------------------------ RESULTS OF OPERATIONS 1996 versus 1995: Sales for 1996 increased $1.03 billion, or 13%, to $9.11 billion from $8.09 billion in 1995. The increase was primarily due to acquisitions (net of divestitures) as well as volume and price. Domestic operations contributed approximately 57% of consolidated sales in each year. Fiscal 1996 comprised 52 weeks compared to 53 weeks in 1995. Acquisitions (net of divestitures) contributed $617.3 million, or 8%, to the sales increase. Fiscal 1995 acquisitions impacting the year-to-year sales dollar comparison included: the Pet Food Business; The All American Gourmet Company; Farley's; and the Family Products Division of Glaxo India, Ltd. Sales also benefited from the following Fiscal 1996 acquisitions: PMV/Zabreh; Kecskemeti Konzervgyar RT; Britwest Ltd.; Fattoria Scaldasole S.p.A.; Craig's; Indian Ocean Tuna Ltd.; Earth's Best, Inc.; and Nature's Recipe. Divestitures impacting the sales comparison include a domestic bulk oil business and an overseas sweetener business. Volume increased $313.5 million, or 4%, in 1996. Foreign volume increases occurred in seafood, pasta, Heinz beans, sauces/pastes and infant foods. Domestic volume increased in StarKist tuna, Ore-Ida foodservice frozen potatoes, pasta, coated products, Bagel Bites and Heinz ketchup 34 offset by decreases in Weight Watchers brand dairy products and single-serve condiments. Prices increased $85.8 million, or 1%, in 1996. Overseas, prices increased in infant foods, Heinz beans and edible oil. Domestic price increases occurred in Heinz ketchup, single-serve condiments and Ore-Ida retail frozen potatoes while decreases occurred in StarKist tuna, frozen entrees (including weight control) and pet food. The strengthening of overseas currencies, particularly in New Zealand and Western Europe, against the U.S. dollar increased sales $60.4 million, or less than one percent. Gross profit increased $369.7 million to $3.34 billion from $2.97 billion a year ago. The ratio of gross profit to sales decreased slightly to 36.6% from 36.7%. The current year's gross profit ratio was impacted by repositioning the business portfolio through acquisitions and divestitures, cost reductions, profit mix and the effect of increased goodwill amortization associated with recent acquisitions. In the fourth quarter, gross profit was also impacted by gains relating to the sale of the Weight Watchers Magazine and the sale of two regional dry pet food product lines. (See Note 12 to the Consolidated Financial Statements.) The gains were offset in the fourth quarter in selling, general and administrative expense by restructuring charges at certain overseas affiliates and an increase in marketing expense of $27.5 million, or 12%. Selling, general and administrative (SG&A) expenses increased $237.9 million to $2.05 billion from $1.81 billion and increased slightly as a percentage of sales to 22.5% from 22.4%. As a percentage of sales, increased general and administrative expenses (due mainly to acquisitions) and increased marketing expenses were offset by lower selling and distribution expenses. Total marketing support (including trade and consumer promotions and media) increased 15% to $1.97 billion on a sales increase of 13%. Operating income increased $131.8 million, or 11%, to $1.29 billion from $1.16 billion for last year. The increase in operating income was primarily due to the increase in gross profit, partially offset by increased marketing expenses; higher selling and distribution expenses related to increased volume; and higher general and administrative expenses associated with acquisitions. Domestic operations provided approximately 57% of operating income in both 1996 and 1995. Attendance at the Weight Watchers meeting business in the U.S. was adversely affected by the severe winter weather and an industry-wide decrease in attendance. Although the entire domestic weight-loss industry continues to show weakness, the Weight Watchers meetings market share exceeds 50%. As a result of an improved cost structure and an established infrastructure, Weight Watchers meeting operations are well positioned to grow profitably if the percentage of dieters using weight-loss services increases. A new spring marketing program was launched early in the U.S. and has shown an increase in attendance compared to the poor winter diet season. Weight Watchers attendance was up in Australia, Scandinavia and Brazil. Frozen entree volume (including weight control) was flat in a very competitive marketplace, where downward pricing pressures in the U.S. affected profitability. The company anticipates additional operating efficiencies related to the further integration of The Budget Gourmet product lines in 1997. In addition, price increases are beginning to be realized in early Fiscal 1997. Heinz U.K.'s results improved significantly over the prior year, primarily as a result of improved sales volumes and prices. The company's New Zealand affiliate, Wattie's Ltd., experienced operational difficulties as new poultry production facilities were brought on-line during 1996. Poor poultry market conditions also impacted the New Zealand operations, as well as higher commodity prices in the frozen food business and more competitive markets in the frozen food and ice cream businesses. Improved results are expected in 1997, particularly in the poultry business. The company continues to invest in Eastern Europe. In general, the Eastern European operations have progressed, but have not yet contributed margins comparable to the company's traditional product lines. As expected, cost synergies resulting from the combination of recently acquired businesses with existing company operations have been realized in the current year. In connection with 35 the acquisition of the Pet Food Business, the closure of the cannery at the Topeka, Kansas factory (dedicating that facility to the production of dry pet food) and the combination of selling, distribution and administrative functions with existing company operations have produced efficiencies that have met or exceeded expectations. Also during the year, the Weight Watchers Gourmet Food Company announced the closure of The All American Gourmet plant in Atlanta, Georgia, where operations were phased out in January. Production has been consolidated with other company facilities. Further synergies are anticipated as the manufacturing operations related to this and other acquisitions continue to be integrated. Non-operating expenses totaled $263.9 million in 1996 compared to $217.8 million in 1995. Net interest expense increased 34% to $232.6 million from $174.0 million, due mainly to higher average borrowings resulting from prior- year acquisitions and from repurchases of company stock under the stock repurchase program. The effective tax rate was 35.6% in 1996 and 37.0% in 1995. The current-year tax rate was favorably affected by the recognition of operating losses overseas and higher profits from operations in lower tax jurisdictions. A full-year tax rate of approximately 38.0% is more indicative of expected future tax rates. (See Notes 4 and 12 to the Consolidated Financial Statements.) Net income increased $68.3 million, or 12%, to $659.3 million from $591.0 million in the prior year. Earnings per share increased to $1.75 from $1.59. The average number of shares used for the calculation of earnings per share increased to 377.2 million from 372.8 million due mainly to increased shares outstanding resulting from stock options exercised and higher common stock equivalents due to a higher average share price. The increase in the average number of shares caused current- year earnings per share to decrease $0.02 per share. The impact of fluctuating exchange rates for 1996 remained relatively consistent on a line-by-line basis throughout the Consolidated Statement of Income. 1995 versus 1994: Sales for 1995 increased $1.04 billion, or 15%, to $8.09 billion from $7.05 billion in 1994. Volume growth, acquisitions and the effect of a weaker U.S. dollar against most foreign currencies contributed to the sales increase. Overall, prices remained stable. Fiscal 1995 comprised 53 weeks compared to 52 weeks in 1994. Volume increased $436.3 million, or 6%, in 1995, approximately two-thirds of which came from domestic sources. In the U.S., increases occurred in Ore-Ida frozen potatoes, StarKist tuna, coated products, Bagel Bites, Heinz ketchup, pasta and pet food. Overseas, most core product categories exhibited strong growth, except for Heinz soups and beans in the United Kingdom. The overseas core product growth was driven by infant foods and sauces/ pastes. Acquisitions increased sales $488.1 million, or 7%. Acquisitions included: the Pet Food Business; The All American Gourmet Company, maker of The Budget Gourmet brand of frozen meals and side dishes; the Family Products Division of Glaxo India, Ltd., which produces a wide range of nutritional drinks, baby food and other consumer products; Farley's infant foods and adult nutrition business from The Boots Company PLC; the Borden Foodservice Group, a unit of Borden, Inc.; Dega, a foodservice products company located in Italy; and other small acquisitions. Overall, prices remained relatively stable, increasing by $10.6 million in 1995, with increases abroad partially offset by decreases in domestic markets. Foreign price increases on infant foods, seafood, soap and cooking oil were partially offset by price decreases in core products in the United Kingdom. In the U.S., price decreases in Weight Watchers brand frozen entrees, StarKist tuna and pet food were partially offset by increases in Ore-Ida frozen potatoes, soup, Weight Watchers meeting fees, sauces/pastes and Heinz ketchup. Foreign currencies strengthened against the U.S. dollar, increasing sales $120.7 million, or 2%, which represented the first increase after three consecutive years of unfavorable currency movements. This increase came primarily from sales in New Zealand, the United Kingdom, Japan and Australia. 36 In the United Kingdom, competitive pressures and a difficult trade environment continued to affect both sales volume and pricing. In 1995, unseasonably warm weather adversely affected soup sales. In the fourth quarter of 1995, however, Heinz U.K.'s results showed improvement due to better pricing and overall volume improvements. Gross profit increased $302.2 million in 1995 to $2.97 billion from $2.66 billion in 1994, due primarily to higher sales levels. The ratio of gross profit to sales decreased 1.1% to 36.7%. An unfavorable profit mix related to recent acquisitions, including the associated amortization of goodwill, prior-year divestitures and higher foodservice sales negatively affected the current year's gross profit ratio. Improvements resulting from production efficiencies implemented in prior years had a positive effect on gross profit. The company completed several productivity improvement and cost reduction initiatives under its two-year restructuring program for which a pretax charge of $192.3 million had been recorded in 1993. During 1994, the company reduced headcount at its Australian operations; closed a pet food plant in Pascagoula, Mississippi; downsized and consolidated StarKist Seafood headquarters functions with those of Heinz Pet Products in Newport, Kentucky; realigned production at Ore-Ida's Ontario, Oregon factory; downsized the domestic administration of Weight Watchers International meeting operations; downsized the administrative functions of the Italian operations; reduced manufacturing headcount and reorganized administrative functions in the United Kingdom; consolidated domestic sales service functions into the Heinz Service Company; and realigned production between Canada and the United States. During 1995, the company completed the transfer of pickle and soup production from Canadian to U.S. facilities; closed the Chef Francisco frozen soup factory in Eugene, Oregon and relocated production to other company facilities; further reduced manufacturing and administrative headcount in the United Kingdom; downsized the foreign administration of Weight Watchers meeting operations; and further consolidated sales service functions related to the Heinz Service Company. In total, more than 2,700 positions were eliminated. In 1995, the company initiated additional productivity improvements for which a charge was recorded in operating income. The 1995 initiatives included: severance, relocation and exit costs associated with the downsizing of the company's Crestar Food Products unit; the relocation of certain administrative functions related to the Weight Watchers Gourmet Food business; non-cash asset write-downs associated with the company's distribution system and severance costs in Italy. The effect of the 1995 charge was immaterial. SG&A expenses increased $87.7 million to $1.81 billion from $1.72 billion, but decreased as a percentage of sales to 22.4% from 24.5%. Increased selling and distribution costs associated with acquisitions and higher volume contributed the majority of the increase. The improved ratio of SG&A expenses as a percentage of sales resulted mainly from a reduction in marketing and administrative costs in existing businesses. Total marketing support (including trade and consumer promotions and media) increased 12% to $1.7 billion, which helped fuel sales volume and profit growth. Operating income increased $87.5 million in 1995 to $1.16 billion from $1.07 billion. In 1994, operating income included the gain on the sale of the confectionery business of Heinz Italia and the sale of the Near East specialty rice business, which together totaled $127.0 million. Excluding the gain, operating income increased $214.5 million, or 23%. The increase in operating income was primarily due to the sales-driven increase in gross profit. The Weight Watchers businesses (meetings and food) showed significant profit improvement in 1995. Meeting attendance in the U.S. increased over 1994, which was affected by the Los Angeles earthquake, a severe winter and an industry-wide decline in attendance. Although the entire weight-loss industry continued to show weakness in 1995, the Weight Watchers meetings market share exceeded 50%. Weight Watchers food business showed improved profitability mainly through more targeted marketing, reduced administrative expenditures and cost savings from productivity enhancements. 37 Non-operating expenses totaled $217.8 million in 1995 compared to $146.0 million in 1994. Interest expense increased $61.3 million, or 41%, due to higher short-term interest rates and higher debt related to current-year acquisitions and the company's share repurchase program. The effective tax rate was 37.0% in 1995 and 34.6% in 1994. The lower 1994 effective tax rate reflects tax benefits from overseas operations ($57.3 million). (See Note 4 to the Consolidated Financial Statements.) Net income decreased $11.9 million, or 2%, to $591.0 million from $602.9 million in the prior year, which included the gain on the sale of the confectionery and specialty rice businesses. Earnings per share increased to $1.59 from $1.57. Earnings per share benefited slightly from a reduction in the number of common shares outstanding resulting from the company's share repurchase program. The 1994 results included a gain of $0.16 per share from the sale of the confectionery business of Heinz Italia and the sale of the Near East specialty rice business and the recognition of certain tax benefits overseas of $0.15 per share. Excluding the $0.16 per share gain from the sale of the confectionery and specialty rice businesses, earnings per share increased $0.18, or 13%. The impact of fluctuating exchange rates for 1995 remained relatively consistent on a line-by-line basis throughout the Consolidated Statement of Income. - ------------------------------------------------------------------------------ LIQUIDITY AND FINANCIAL POSITION In 1996, cash provided by operating activities was sufficient to provide for dividend payments to shareholders, as well as productivity improvements and plant expansions. Divestitures combined with the sale of certain investments were used to provide for current-year acquisitions. Proceeds from stock options exercised and cash from the related tax benefit approximated cash used for current-year share repurchases. Overall, total borrowings decreased slightly. Return on average shareholders' equity (ROE) was 25.5% in 1996, 24.6% in 1995 and 25.9% in 1994. Pretax return on average invested capital (ROIC) was 21.8% in 1996, 22.1% in 1995 and 22.7% in 1994. Cash provided by operating activities was $737.1 million in 1996, compared to $752.5 million in 1995. The slight decrease in 1996 versus 1995 was the result of higher working capital needs, due mainly to higher sales levels. Cash used for accrued liabilities totaled $114.0 million compared to $72.6 million a year ago, resulting mainly from the funding of accruals established upon the purchase of certain businesses. (See Note 2 to the Consolidated Financial Statements.) In 1995, cash provided by operating activities decreased $178.7 million to $752.5 million, from $931.2 million in 1994. The decrease was the result of higher taxes paid and higher operating working capital requirements principally related to increased sales levels. Cash used for investing activities was $290.1 million in 1996 versus $1.47 billion in 1995. The decrease is mainly due to lower current-year spending on acquisitions, which totaled $156.0 million versus $1.18 billion a year ago. (See Note 2 to the Consolidated Financial Statements.) Capital expenditures totaled $334.8 million in 1996 and $341.8 million in 1995. Both years reflected expenditures for productivity improvements and plant expansions, principally at the company's Ore-Ida, Heinz Pet Products, Heinz U.S.A., Wattie's, Weight Watchers Gourmet Food Company, StarKist Seafood and United Kingdom operations. Purchases and sales/maturities of short-term investments decreased in 1996. In 1995, increased activity provided liquidity to fund various acquisitions made by the company. In addition, the company periodically sells a portion of its short-term investment portfolio in order to reduce its borrowings. Investments in tax benefits provided $62.1 million compared to $14.4 million a year ago, due mainly to the company's sale of certain domestic investments. Financing activities used $470.8 million in 1996 compared to providing $733.4 million in 1995. The company borrowed funds totaling $1.19 billion in 1995 versus making net repayments of $81.7 million in the current year. Cash used for dividends paid to shareholders increased by $36.5 million, while treasury stock purchases decreased $118.5 million. Stock options exercised provided an additional $51.6 million in 1996. 38 The average amount of short-term debt outstanding (excluding the long-term portion of domestic commercial paper) during 1996, 1995 and 1994 was $1.5 billion, $1.2 billion and $1.2 billion, respectively. Total short-term debt had a weighted average interest rate during 1996 of 6.5% and at year-end of 6.2%. The weighted average interest rate on short-term debt during 1995 was 6.1% and at year-end was 6.7%. Aggregate domestic commercial paper had a weighted average interest rate during 1996 of 5.8% and at year-end of 5.4%. In 1995, the weighted average rate was 5.3% and the rate at year-end was 6.1%. Based upon the amount of commercial paper recorded at May 1, 1996, a variance of 1/8% in the related interest rate would cause interest expense to change by approximately $1.9 million. The company continues to evaluate long-term financing vehicles in order to reduce short-term variable interest rate debt. On September 5, 1995, the company amended the line of credit agreements which support its domestic commercial paper programs, reducing availability and extending maturity dates. Total availability under the credit agreements is $2.0 billion, compared to $2.3 billion under the Fiscal 1995 agreements. The $1.5 billion of short-term credit lines that were set to expire in September 1995 were reduced to $1.2 billion and extended to September 1996. It is expected that the company will extend the maturity date of these lines prior to their expiration. The maturity date of the remaining $800.0 million of line of credit agreements was extended from September 1999 to September 2000. As of May 1, 1996, $800.0 million of domestic commercial paper outstanding is classified as long-term debt due to the long-term nature of the supporting line of credit agreements. At May 3, 1995, a similar amount of domestic commercial paper was classified as long-term. As of May 1, 1996 and May 3, 1995, domestic commercial paper of $450.0 million was privately placed. On September 12, 1995, the Board of Directors raised the quarterly dividend on the company's common stock from $0.24 per share to $0.26 1/2 per share for an indicated annual rate of $1.06 per share. The company paid $381.9 million in dividends to both common and preferred shareholders, an increase of $36.5 million, or 11%, over 1995. The dividend rate in effect at the end of each year resulted in a payout ratio of 60.6% in 1996, 60.5% in 1995 and 56.2% in 1994. In 1996, the company repurchased 4.8 million shares of treasury stock, or 1% of the amount outstanding at the beginning of Fiscal 1996, at a cost of $155.2 million. As of May 1, 1996, the company had repurchased 10.1 million shares as part of the current 15.0 million share repurchase program, which was authorized by the Board of Directors on September 13, 1994. The previous 15.0 million share repurchase program, which began in June 1993, was completed in September 1994. During 1995, 11.5 million shares were repurchased at a cost of $273.7 million. The company may reissue repurchased shares upon the exercise of stock options, conversion of preferred stock and for general corporate purposes. The Board of Directors adopted, effective June 12, 1996, subject to the approval of the shareholders at the annual meeting in September 1996, a new stock option plan providing for the grant of up to 15.0 million shares of common stock at any time over the next ten years. As of June 12, 1996, options for approximately 2.0 million shares had been contingently granted under this plan. In general, the terms of the 1996 plan are similar to the company's other stock option plans. (See Note 8 to the Consolidated Financial Statements.) During 1995, the company participated in the formation of a business (the "entity") which purchases a portion of the trade receivables generated by the company. The company sells receivables to Jameson, Inc., a wholly owned subsidiary, which then sells undivided interests in the receivables to the entity. Outside investors contributed $95.4 million in capital to the entity. The company consolidates the entity, and the capital contributed by the outside investors is classified as minority interest ("other long-term liabilities") on the Consolidated Balance Sheets. The company uses derivative financial instruments for the purpose of hedging currency, commodity price and interest rate exposures which exist as part of ongoing business opera- 39 tions. As a policy, the company does not engage in speculative or leveraged transactions, nor does the company hold or issue financial instruments for trading purposes. (See Notes 1 and 11 to the Consolidated Financial Statements.) On August 24, 1995 and September 7, 1995, the Howard Heinz Endowment, the Vira I. Heinz Endowment, the Heinz Family Foundation and certain Heinz family trusts sold a total of 21.8 million shares of the company's common stock in an underwritten secondary offering. The secondary offering was priced at $28.25 per share. The company did not sell any shares in the offering and did not receive any of the proceeds. In March 1995, the Financial Accounting Standards Board ("FASB") issued Financial Accounting Standard ("FAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." The company will adopt the statement in Fiscal 1997, as required. Management anticipates that implementation of the new standard will not have a material effect on results of operations or financial position. (See Note 1 to the Consolidated Financial Statements.) In October 1995, the FASB issued FAS No. 123, "Accounting for Stock-Based Compensation." This statement will be effective beginning in Fiscal 1997. This statement allows companies either to continue to account for stock- based employee compensation plans using the intrinsic value based method of accounting prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("Opinion 25"), or to adopt a fair value based method, as defined in the new standard. The company will continue to account for stock compensation in accordance with Opinion 25. The impact of inflation on both the company's financial position and results of operations has been minimal and is not expected to adversely affect 1997 results. The company's financial position continues to remain strong, enabling it to meet cash requirements for operations, capital expansion programs and dividends to shareholders. - ------------------------------------------------------------------------------ OUTLOOK The company expects total debt to decrease in 1997 through continued strong operating cash flows, improved working capital management and capital expenditure controls, which should result in improved profitability through lower interest charges. The company will, however, continue to evaluate strategic acquisitions in its core categories as they arise and to make opportunistic share repurchases, both of which could impact total debt. - ------------------------------------------------------------------------------ RECENT DEVELOPMENTS On July 10, 1996, the company acquired Southern Country Foods Limited, one of the world's largest producers of canned corned beef and meals. Southern Country Foods, with annual sales of approximately $55 million, sells two- thirds of its products in the Pacific Rim, the Middle East and Canada and will operate as part of H.J. Heinz Australia Ltd. Also on July 10, 1996, the Board of Directors authorized the repurchase of up to an additional 15.0 million shares of common stock, beginning upon the conclusion of the current repurchase authorization. Such repurchases may take place over an extended period of time. - ------------------------------------------------------------------------------ STOCK MARKET INFORMATION H.J. Heinz Company common stock is traded principally on the New York Stock Exchange and the Pacific Stock Exchange, under the symbol HNZ. The number of shareholders of record of the company's common stock as of June 28, 1996 approximated 62,496. The closing price of the common stock on the New York Stock Exchange composite listing on May 1, 1996 was $33 3/4. All common stock price information reflects the three-for-two stock split, which was effective October 3, 1995. 40 Stock price information for common stock by quarter follows:
Stock Price Range ------------------ High Low --------------------------------- 1996 FIRST $ 31 3/8 $ 27 5/8 SECOND 31 7/8 27 5/8 THIRD 34 7/8 30 5/8 FOURTH 36 5/8 30 7/8 --------------------------------- 1995 First $ 23 5/8 $ 21 1/8 Second 25 5/8 21 5/8 Third 27 1/2 23 5/8 Fourth 28 5/8 24 3/4 ---------------------------------
- ------------------------------------------------------------------------------ SEGMENT AND GEOGRAPHIC DATA The company is engaged principally in one line of business--processed food products--which represents more than 90% of consolidated sales. The following table presents information about the company by geographic area. There were no material amounts of sales or transfers among geographic areas and no material amounts of United States export sales.
(Dollars in thousands) Domestic Foreign Worldwide North America Europe Asia/Pacific Other - --------------------------------------------------------------------------------------------------------------------------------- 1996 SALES $ 5,235,847 $ 3,876,418 $ 9,112,265 $ 5,598,286 $ 2,133,690 $ 1,085,747 $ 294,542 OPERATING INCOME 739,807 547,765 1,287,572 801,090 336,481 114,239 35,762 IDENTIFIABLE ASSETS 4,801,790 3,821,901 8,623,691 5,099,632 2,289,919 978,292 255,848 CAPITAL EXPENDITURES* 185,874 148,913 334,787 195,517 65,485 40,294 33,491 DEPRECIATION AND AMORTIZATION EXPENSE 206,912 136,897 343,809 224,824 72,530 30,674 15,781 1995 Sales $ 4,628,507 $ 3,458,287 $ 8,086,794 $ 4,982,959 $ 1,881,013 $ 1,006,198 $ 216,624 Operating income 656,897 498,912 1,155,809 715,592 282,941 121,951 35,325 Identifiable assets 4,812,122 3,435,066 8,247,188 5,161,418 1,979,351 919,988 186,431 Capital expenditures* 188,099 153,689 341,788 201,912 72,384 48,435 19,057 Depreciation and amortization expense 197,009 118,258 315,267 213,243 68,122 28,214 5,688 1994 Sales $ 4,021,436 $ 3,025,302 $ 7,046,738 $ 4,380,310 $ 1,685,167 $ 816,943 $ 164,318 Operating income+ 534,395 533,948 1,068,343 587,622 371,794 89,359 19,568 Identifiable assets 3,657,114 2,724,032 6,381,146 3,992,820 1,551,477 729,240 107,609 Capital expenditures* 154,505 120,547 275,052 167,473 65,802 33,491 8,286 Depreciation and amortization expense 161,219 98,590 259,809 177,398 54,543 23,433 4,435 - -------------------------------------------------------------------------------------------------------------------------------
* Excludes property, plant and equipment acquired through acquisitions. + Fiscal 1994 domestic and foreign operating income includes the gain on the sale of the confectionery and specialty rice businesses of $46.3 million and $80.7 million, respectively. 41 CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS H.J. Heinz Company and Subsidiaries
Fiscal Year Ended MAY 1, 1996 May 3, 1995 April 27, 1994 - ------------------------------------------------------------------------------ (Dollars in thousands, except per share data) (52 weeks) (53 weeks) (52 weeks) - ------------------------------------------------------------------------------ CONSOLIDATED STATEMENTS OF INCOME: Sales $ 9,112,265 $ 8,086,794 $ 7,046,738 Cost of products sold 5,775,357 5,119,597 4,381,745 - ------------------------------------------------------------------------------ Gross profit 3,336,908 2,967,197 2,664,993 Selling, general and administrative expenses 2,049,336 1,811,388 1,723,651 Gain on sale of confectionery and specialty rice businesses - - 127,001 - ------------------------------------------------------------------------------ Operating income 1,287,572 1,155,809 1,068,343 Interest income 44,824 36,566 36,771 Interest expense 277,411 210,585 149,243 Other expense, net 31,324 43,783 33,485 - ------------------------------------------------------------------------------ Income before income taxes 1,023,661 938,007 922,386 Provision for income taxes 364,342 346,982 319,442 - ------------------------------------------------------------------------------ Net income $ 659,319 $ 591,025 $ 602,944 ============================================================================== CONSOLIDATED STATEMENTS OF RETAINED EARNINGS: Amount at beginning of year $ 3,878,988 $ 3,633,385 $ 3,356,399 Net income 659,319 591,025 602,944 Cash dividends: Common stock 381,871 345,358 325,887 Preferred stock 56 64 71 - ------------------------------------------------------------------------------ Amount at end of year $ 4,156,380 $ 3,878,988 $ 3,633,385 ============================================================================== PER COMMON SHARE AMOUNTS: Net income $ 1.75 $ 1.59 $ 1.57 Cash dividends $ 1.03 1/2 $ 0.94 $ 0.86 ============================================================================== Average shares for earnings per share 377,155,837 372,806,306 385,218,024 ==============================================================================
See Notes to Consolidated Financial Statements. 42 CONSOLIDATED STATEMENTS OF CASH FLOWS H.J. Heinz Company and Subsidiaries
Fiscal Year Ended MAY 1, 1996 May 3, 1995 April 27, 1994 - ---------------------------------------------------------------------------- (Dollars in thousands) (52 weeks) (53 weeks) (52 weeks) - ---------------------------------------------------------------------------- OPERATING ACTIVITIES: Net income $ 659,319 $ 591,025 $ 602,944 Adjustments to reconcile net income to cash provided by operating activities: Depreciation 254,640 238,229 200,035 Amortization 89,169 77,038 59,774 Deferred tax provision 135,235 134,304 106,803 Gain on sale of confectionery and specialty rice businesses - - (127,001) Other items, net (82,198) (43,680) (55,767) Changes in current assets and liabilities, excluding effects of acquisitions and divestitures: Receivables (222,894) (77,039) 135,195 Inventories (102,269) (87,580) 9,742 Prepaid expenses and other current assets (14,361) (27,634) 14,688 Accounts payable 126,596 111,361 67,660 Accrued liabilities (114,015) (72,644) (110,822) Income taxes 7,866 (90,874) 27,954 - --------------------------------------------------------------------------- Cash provided by operating activities 737,088 752,506 931,205 - --------------------------------------------------------------------------- INVESTING ACTIVITIES: Capital expenditures (334,787) (341,788) (275,052) Acquisitions, net of cash acquired (156,006) (1,178,819) (95,685) Proceeds from divestitures 82,061 52,497 265,573 Purchases of short-term investments (982,824) (1,808,327) (598,486) Sales and maturities of short-term investments 1,050,971 1,800,992 680,208 Investment in tax benefits 62,081 14,436 1,400 Other items, net (11,637) (12,819) (5,377) - --------------------------------------------------------------------------- Cash (used for) investing activities (290,141) (1,473,828) (27,419) - --------------------------------------------------------------------------- FINANCING ACTIVITIES: Proceeds from long-term debt 4,860 573,689 991 Payments on long-term debt (46,791) (10,209) (18,249) (Payments on) proceeds from short-term debt, net (39,745) 630,310 (398,333) Dividends (381,927) (345,422) (325,958) Purchase of treasury stock (155,200) (273,671) (222,582) Proceeds from minority interest - 95,400 - Proceeds from borrowings against insurance policies 6,361 70,931 134,162 Repayments of borrowings against insurance policies - (68,898) (65,264) Exercise of stock options 95,853 44,263 22,645 Other items, net 45,788 17,014 11,042 - --------------------------------------------------------------------------- Cash (used for) provided by financing activities (470,801) 733,407 (861,546) - --------------------------------------------------------------------------- Effect of exchange rate changes on cash and cash equivalents (10,420) 13,717 (12,136) - --------------------------------------------------------------------------- Net (decrease) increase in cash and cash equivalents (34,274) 25,802 30,104 Cash and cash equivalents at beginning of year 124,338 98,536 68,432 - --------------------------------------------------------------------------- Cash and cash equivalents at end of year $ 90,064 $ 124,338 $ 98,536 ===========================================================================
See Notes to Consolidated Financial Statements. 43 CONSOLIDATED BALANCE SHEETS H.J. Heinz Company and Subsidiaries
Assets (Dollars in thousands) MAY 1, 1996 May 3, 1995 - ---------------------------------------------------------------------- CURRENT ASSETS: Cash and cash equivalents $ 90,064 $ 124,338 Short-term investments, at cost which approximates market 18,316 82,693 Receivables (net of allowances: 1996 - $17,298 and 1995 - $16,309) 1,207,874 1,030,790 Inventories: Finished goods and work-in- process 1,115,367 1,004,350 Packaging material and ingredients 378,596 370,220 - ---------------------------------------------------------------------- 1,493,963 1,374,570 - ---------------------------------------------------------------------- Prepaid expenses 221,669 190,412 Other current assets 14,806 20,219 - ---------------------------------------------------------------------- Total current assets 3,046,692 2,823,022 - ---------------------------------------------------------------------- PROPERTY, PLANT AND EQUIPMENT: Land 62,243 60,955 Buildings and leasehold improvements 824,308 804,762 Equipment, furniture and other 3,333,493 3,138,937 - ---------------------------------------------------------------------- 4,220,044 4,004,654 Less accumulated depreciation 1,603,216 1,470,278 - ---------------------------------------------------------------------- Total property, plant and equipment, net 2,616,828 2,534,376 - ---------------------------------------------------------------------- OTHER NON-CURRENT ASSETS: Investments, advances and other assets 573,645 543,032 Goodwill (net of amortization: 1996 - $211,693 and 1995 - $163,793) 1,737,478 1,682,933 Other intangibles (net of amortization: 1996 - $141,886 and 1995 - $117,430) 649,048 663,825 - ---------------------------------------------------------------------- Total other non-current assets 2,960,171 2,889,790 - ---------------------------------------------------------------------- Total assets $ 8,623,691 $ 8,247,188 ======================================================================
See Notes to Consolidated Financial Statements. 44
Liabilities and Shareholders' Equity (Dollars in thousands) MAY 1, 1996 May 3, 1995 - ---------------------------------------------------------------------- CURRENT LIABILITIES: Short-term debt $ 994,586 $ 1,018,354 Portion of long-term debt due within one year 87,583 55,937 Accounts payable 870,337 720,747 Salaries and wages 72,678 77,276 Accrued marketing 146,055 141,701 Other accrued liabilities 368,182 470,842 Income taxes 175,701 79,209 - ---------------------------------------------------------------------- Total current liabilities 2,715,122 2,564,066 - ---------------------------------------------------------------------- LONG-TERM DEBT AND OTHER LIABILITIES: Long-term debt 2,281,659 2,326,785 Deferred income taxes 319,936 348,576 Non-pension postretirement benefits 209,994 220,673 Other 390,223 314,219 - ---------------------------------------------------------------------- Total long-term debt and other liabilities 3,201,812 3,210,253 - ---------------------------------------------------------------------- SHAREHOLDERS' EQUITY: Capital stock: Third cumulative preferred, $1.70 first series, $10 par value 271 358 Common stock, 431,096,485 shares issued, $.25 par value 107,774 107,774 - ---------------------------------------------------------------------- 108,045 108,132 Additional capital 154,602 121,291 Retained earnings 4,156,380 3,878,988 Cumulative translation adjustments (155,753) (157,159) - ---------------------------------------------------------------------- 4,263,274 3,951,252 Less: Treasury shares, at cost (62,498,417 shares at May 1, 1996 and 65,587,400 shares at May 3, 1995) 1,500,866 1,450,724 Unfunded pension obligation 32,550 - Unearned compensation relating to the ESOP 23,101 27,659 - ---------------------------------------------------------------------- Total shareholders' equity 2,706,757 2,472,869 - ---------------------------------------------------------------------- Total liabilities and shareholders' equity $ 8,623,691 $ 8,247,188 ======================================================================
45 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS H.J. Heinz Company and Subsidiaries - ------------------------------------------------------------------------------ 1. SIGNIFICANT ACCOUNTING POLICIES Fiscal Year: H.J. Heinz Company (the "company") operates on a 52- or 53-week fiscal year ending the Wednesday nearest April 30. However, certain foreign subsidiaries have earlier closing dates to facilitate timely reporting. Fiscal years for the financial statements included herein ended May 1, 1996, May 3, 1995 and April 27, 1994. Principles of Consolidation: The consolidated financial statements include the accounts of the company and its subsidiaries. All intercompany accounts and transactions were eliminated. Certain prior-year amounts have been reclassified in order to conform with the 1996 presentation. Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Translation of Foreign Currencies: For all significant foreign operations, the functional currency is the local currency. Assets and liabilities of these operations are translated at the exchange rate in effect at each year- end. Income statement accounts are translated at the average rate of exchange prevailing during the year. Translation adjustments arising from the use of differing exchange rates from period to period are included as a component of shareholders' equity. Gains and losses from foreign currency transactions are included in net income for the period. Cash Equivalents: Cash equivalents are defined as highly liquid investments with original maturities of 90 days or less. Inventories: Inventories are stated at the lower of cost or market. Cost is determined principally under the average cost method. Property, Plant and Equipment: Land, buildings and equipment are recorded at cost. For financial reporting purposes, depreciation is provided on the straight-line method over the estimated useful lives of the assets. Accelerated depreciation methods are generally used for income tax purposes. Expenditures for new facilities and improvements that substantially extend the capacity or useful life of an asset are capitalized. Ordinary repairs and maintenance are expensed as incurred. When property is retired or otherwise disposed, the cost and related depreciation are removed from the accounts and any related gains or losses are included in income. Intangibles: Goodwill and other intangibles arising from acquisitions are being amortized on a straight-line basis over periods not exceeding 40 years. The company regularly reviews the individual components of the balances by evaluating the future cash flows of the businesses to determine the recoverability of the assets and recognizes, on a current basis, any diminution in value. Long-Lived Assets: In March 1995, the Financial Accounting Standards Board ("FASB") issued Financial Accounting Standard ("FAS") No. 121, "Accounting for the Impairment of Long-Lived 46 Assets and for Long-Lived Assets to Be Disposed Of." This statement establishes accounting standards for the impairment of long-lived assets, certain identifiable intangibles, and goodwill related to those assets to be held and used and for long-lived assets and certain identifiable intangibles to be disposed of. This statement requires that those assets to be held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable, and those assets to be disposed of be reported at the lower of carrying amount or fair value less cost to sell. The company will adopt the statement in Fiscal 1997. Management anticipates that implementation of the new standard will not have a material effect on results of operations or financial position. Revenue Recognition: The company generally recognizes revenue upon shipment of goods to customers or upon performance of services. However, in certain overseas countries, revenue is recognized upon receipt of the product by the customer. Advertising Expenses: Advertising costs are generally expensed in the year in which the advertising first takes place. Income Taxes: Deferred income taxes result primarily from temporary differences between financial and tax reporting. If it is more likely than not that some portion or all of a deferred tax asset will not be realized, a valuation allowance is recognized. The company has not provided for possible U.S. taxes on the undistributed earnings of foreign subsidiaries that are considered to be reinvested indefinitely. Calculation of the unrecognized deferred tax liability for temporary differences related to these earnings is not practicable. Where it is contemplated that earnings will be remitted, credit for foreign taxes already paid generally will offset applicable U.S. income taxes. In cases where they will not offset U.S. income taxes, appropriate provisions are included in the Consolidated Statements of Income. Net Income Per Common Share: Net income per common share has been computed by dividing income applicable to common shareholders by the weighted average number of shares of common stock outstanding and common stock equivalents during the respective years. On September 12, 1995, the company's Board of Directors authorized a three-for-two common stock split, effective October 3, 1995. There was no adjustment in the stock's par value or the total number of authorized common shares. All common share and per share amounts reflect the three-for-two common stock split, effective October 3, 1995. Where appropriate, prior-year amounts have been restated. Fully diluted earnings per share are not significantly different from primary earnings per share and, accordingly, are not presented. Stock-Based Employee Compensation Plans: Stock-based compensation is accounted for by using the intrinsic value based method in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("Opinion 25"). In October 1995, the FASB issued FAS No. 123, "Accounting for Stock-Based Compensation," which allows companies to either continue to account for stock-based compensation using Opinion 25, or to adopt a fair value based method of accounting. The company intends to continue with its current method of accounting in accordance with Opinion 25. Financial Instruments: The company uses derivative financial instruments for the purpose of hedging currency, price and interest rate exposures which exist as part of ongoing business operations. As a policy, the company does not engage in speculative or leveraged transactions, nor does the company hold or issue financial instruments for trading purposes. 47 -- Interest Rate Swap Agreements: The company may utilize interest rate swap agreements to lower funding costs, to diversify sources of funding or to alter interest rate exposure. Amounts paid or received on interest rate swap agreements are deferred and recognized as adjustments to interest expense. Gains and losses realized upon the settlement of such contracts are deferred and amortized to interest expense over the remaining term of the debt instrument or are recognized immediately if the underlying instrument is settled. -- Foreign Currency Contracts: The company enters into forward, option and swap contracts to hedge transactions denominated in foreign currencies in order to reduce the currency risk associated with fluctuating exchange rates. Such contracts are used primarily to hedge purchases of certain raw materials and finished goods and payments arising from certain intercompany transactions with foreign subsidiaries. Gains and losses are deferred in the cost basis of the underlying transaction. -- Commodity Contracts: In connection with purchasing certain commodities for future manufacturing requirements, the company enters into commodities futures and option contracts, as deemed appropriate, to reduce the effect of price fluctuations. Such contracts are accounted for as hedges, with gains and losses recognized as part of cost of products sold, and generally have a term of less than one year. The cash flows related to the above financial instruments are classified in the Statements of Cash Flows in a manner consistent with those of the transactions being hedged. Business Segment Information: Information concerning business segment and geographic data is in Management's Discussion and Analysis. - ------------------------------------------------------------------------------ 2. ACQUISITIONS All of the following acquisitions have been accounted for as purchases and, accordingly, the respective purchase prices have been allocated to the respective assets and liabilities based upon their estimated fair values as of the acquisition date. Operating results of businesses acquired have been included in the Consolidated Statements of Income from the respective acquisition dates forward. Fiscal 1996: The company acquired the following businesses for a total of $193.4 million, including notes to sellers of $37.4 million. The preliminary allocations of purchase price resulted in goodwill of $128.1 million and other intangibles of $6.6 million, which will be amortized on a straight-line basis over periods not exceeding 40 years. On March 28, 1996, the company acquired the Nature's Recipe business, which markets a brand of premium specialty pet foods. On March 6, 1996, the company acquired Earth's Best, Inc. of Boulder, Colorado, which produces a leading brand of premium, organic baby foods and will complement the company's range of infant cereals, juices and strained and junior foods. The company acquired a majority interest in PMV/Zabreh, a producer of infant formulas and dairy products located in Zabreh, Moravia, Czech Republic. PMV/Zabreh holds leading market shares in both the Czech and Slovak Republics for infant formula, sold through pharmacies under the Sunar and Feminar brand names. The company increased its investment to 97% of Kecskemeti Konzervgyar RT, which produces jarred baby foods and canned vegetable products in Kecskemet, Hungary. Other small acquisitions were also made during Fiscal 1996, including Fattoria Scaldasole S.p.A., which is a processor of organic foods in Italy; Alimentos Pilar S.A. of Argentina, a leading producer of pet and animal feed; the Craig's brand of jams and dressings in New Zealand; the Mareblu brand of canned tuna, which is sold exclusively in Italy; a majority interest in Indian 48 Ocean Tuna Ltd., located in the Seychelles; and Britwest Ltd., which markets single-serve condiments, beverages and sauces in Britain and France. Pro forma results of the company, assuming the Fiscal 1996 acquisitions had been made at the beginning of each period presented, would not be materially different from the results reported. Fiscal 1995: On March 14, 1995, the company completed the acquisition of the North American pet food businesses of The Quaker Oats Company (the "Pet Food Business") for approximately $725 million. Among the major brands of the Pet Food Business are Kibbles'n Bits dry dog food; Cycle canned and dry dog food; Gravy Train dry dog food (U.S. only); Ken-L Ration canned dog food; and Snausages, Pup- Peroni and Pounce pet treats. The acquisition has significantly strengthened the company's presence in the pet food industry. The funds used to acquire the Pet Food Business were provided primarily through the issuance of privately placed commercial paper. The allocation of the purchase price has resulted in goodwill of $532.5 million and other intangible assets of $146.2 million. These items are being amortized on a straight-line basis over periods not exceeding 40 years. In 1995, in connection with the acquisition of the Pet Food Business, the company had established certain opening balance sheet accruals for employee severance and relocation costs and facilities consolidation and closure costs based upon management's preliminary assessment of such actions to be undertaken. During 1996, management finalized integration plans and made minor adjustments to the opening balance sheet, while approximately $29 million was spent against such accruals. Remaining accruals are considered adequate for any severance, relocation or exit costs associated with the acquisition. The following pro forma information combines the consolidated results of operations as if the acquisition of the Pet Food Business had been consummated as of the beginning of the periods presented, after including the impact of certain adjustments. Adjustments include (i) the amortization of goodwill and other intangibles; (ii) interest expense related to the acquisition debt; (iii) depreciation on the restated values of property, plant and equipment; and (iv) the related income tax effects.
(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 $ 1.57 $ 1.55 ----------------------------------------------------------
During 1995, the company also acquired the following other businesses (the "other 1995 acquisitions"). On December 2, 1994, the company acquired The All American Gourmet Company for a purchase price of approximately $200 million. The All American Gourmet Company produces The Budget Gourmet brand of frozen meals and side dishes and was formerly a part of Kraft General Foods, Inc. On September 30, 1994, the company acquired the Family Products Division of Glaxo India, Ltd. for a purchase price of approximately $65 million. The Family Products Division, based in Bombay, India, produces a wide range of nutritional drinks, baby food and other consumer products. On July 22, 1994, the company acquired the Farley's infant foods and adult nutrition business from The Boots Company PLC of Nottingham, England for a total purchase price of approximately $140 million. Farley's product offerings include a wide range of infant feeding products, from formulas to post-weaning biscuits, cereals and dry meals. 49 On May 16, 1994, the company acquired the Borden Foodservice Group, a unit of Borden, Inc. The group's product range includes a single-serve line of condiments. Other acquisitions during 1995 included Dega, a foodservice products company located in Italy. The allocation of the purchase prices of the other 1995 acquisitions (excluding the Pet Food Business) has resulted in goodwill of $142.0 million and other intangible assets of $168.3 million, which will be amortized on a straight-line basis over periods not exceeding 40 years. On an unaudited pro forma basis, the sales of the company, as if the acquisition of the Pet Food Business and the other 1995 acquisitions were made as of the beginning of 1995 and 1994, are $8.7 billion and $8.2 billion, respectively. The results of operations would not be materially different from those reported. Pro forma results are not necessarily indicative of what actually would have occurred if the acquisitions had been in effect for the entire periods presented. In addition, they are not intended to be a projection of future results and do not reflect any synergies that might be achieved from combined operations. The company had established opening balance sheet accruals for the other 1995 acquisitions for employee severance and relocation costs and facilities consolidation and closure costs based upon management's preliminary assessment of such actions to be undertaken. During 1996, accruals for exit costs were reduced by $23 million, resulting in a corresponding reduction to goodwill. This was primarily attributable to not pursuing a course of action that was anticipated at the acquisition date. Also during 1996, approximately $15 million was spent against the accruals established for employee severance and relocation costs, and exit costs. Remaining accruals are considered adequate for any severance, relocation or exit costs associated with the other 1995 acquisitions. Fiscal 1994: In 1994, the company purchased the Moore's and Domani product lines from The Clorox Company of Oakland, California for approximately $90 million. The acquisition resulted in goodwill of approximately $53 million, which is being amortized over a period of 40 years. Pro forma results of the company, assuming the Fiscal 1994 acquisition had been made at the beginning of 1994, would not be materially different from the results reported. - ------------------------------------------------------------------------------ 3. DIVESTITURES During each of the three years in the period ended May 1, 1996, the company sold several non-strategic businesses. Pro forma results of the company, assuming all of the divestitures had been made at the beginning of each period presented, would not be materially different from the results reported. Fiscal 1996 divestitures include: an overseas sweetener business, the Weight Watchers Magazine and two regional dry pet food product lines. (See Note 12 to the Consolidated Financial Statements.) In Fiscal 1994, the company sold its Near East specialty rice business to Golden Grain Company, a subsidiary of The Quaker Oats Company, for approximately $80 million. The sale included trademarks, inventory and fixed assets, including Near East's Leominster, Massachusetts plant. Also in Fiscal 1994, the company sold its confectionery business of Heinz Italia S.p.A. to Hershey Foods Corporation for approximately $133 million. The divestiture included brand names, inventory and fixed assets. The pretax gain on these divestitures totaled $127.0 million, or $0.16 per share. 50 - ------------------------------------------------------------------------------ 4. 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) 1996 1995 1994 ---------------------------------------------------------------------- Current: U.S. federal and U.S. possessions $ 106,848 $ 114,819 $ 65,242 State 11,475 19,106 22,093 Foreign 110,784 78,753 125,304 ---------------------------------------------------------------------- 229,107 212,678 212,639 ---------------------------------------------------------------------- Deferred: U.S. federal and U.S. possessions 87,239 47,676 88,989 State 10,408 6,897 (2,635) Foreign 37,588 79,731 20,449 ---------------------------------------------------------------------- 135,235 134,304 106,803 ---------------------------------------------------------------------- Total tax provision $ 364,342 $ 346,982 $ 319,442 ----------------------------------------------------------------------
The tax benefit resulting from adjustments to the beginning-of-the-year valuation allowance, due to a change in circumstances, to recognize the realizability of deferred tax assets in future years totaled $12.5 million in 1996, $3.1 million in 1995 and $57.3 million in 1994. The 1996 tax provision was reduced by $24.9 million due to the recognition of foreign tax losses and was increased by $31.2 million due to charges related to the repatriation of foreign earnings. In 1994, changes in U.S. tax law that increased the U.S. statutory tax rate from 34% to 35% and provided for the deductibility of certain purchased intangibles did not have a material effect on the company's results of operations. Tax expense resulting from allocating certain tax benefits directly to additional capital totaled $41.7 million in 1996. The components of income before income taxes consist of the following:
(Dollars in thousands) 1996 1995 1994 ---------------------------------------------------------------------- ---------------------------------------------------------------------- Domestic $ 500,034 $ 495,159 $ 418,395 Foreign 523,627 442,848 503,991 ---------------------------------------------------------------------- $ 1,023,661 $ 938,007 $ 922,386 ----------------------------------------------------------------------
The differences between the U.S. federal statutory tax rate and the company's consolidated effective tax rate are as follows:
1996 1995 1994 ---------------------------------------------------------------------- U.S. federal statutory tax rate 35.0% 35.0% 35.0% Tax on income of foreign subsidiaries 0.5 0.9 2.9 State income taxes (net of federal benefit) 1.8 2.1 1.4 Net valuation allowance (1.3) 2.2 (6.1) Tax credits (0.2) (2.7) - Earnings repatriation 3.0 1.6 1.2 Recognition of foreign tax losses (2.4) (0.1) 0.1 Other (0.8) (2.0) 0.1 ---------------------------------------------------------------------- Effective tax rate 35.6% 37.0% 34.6% ----------------------------------------------------------------------
51 The deferred tax (assets) and deferred tax liabilities recorded on the balance sheets as of May 1, 1996 and May 3, 1995 are as follows:
(Dollars in thousands) 1996 1995 ---------------------------------------------------------------------- Depreciation/amortization $ 420,179 $ 355,874 Benefit plans 69,040 55,877 Other 133,673 117,249 ---------------------------------------------------------------------- 622,892 529,000 ---------------------------------------------------------------------- Asset revaluations - (35,125) Provision for estimated expenses (45,910) (55,921) Operating loss carryforwards (55,717) (35,079) Benefit plans (122,448) (101,042) Tax credit carryforwards (52,924) (51,207) Other (142,609) (113,869) ---------------------------------------------------------------------- (419,608) (392,243) ---------------------------------------------------------------------- Valuation allowance 35,594 49,487 ---------------------------------------------------------------------- Net deferred tax liabilities $ 238,878 $ 186,244 ----------------------------------------------------------------------
At the end of 1996, net operating loss carryforwards totaled $137.5 million. Of that amount, $88.4 million expire between 1997 and 2010; the other $49.1 million do not expire. Foreign tax credit carryforwards total $52.9 million and expire through 2001. The company's consolidated United States income tax returns have been audited by the Internal Revenue Service for all years through 1991. Undistributed earnings of foreign subsidiaries considered to be reinvested permanently amounted to $1.52 billion at May 1, 1996. The net change in the valuation allowance for deferred tax assets was a decrease of $13.9 million. - ------------------------------------------------------------------------------ 5. DEBT
Short-Term (Dollars in thousands) 1996 1995 ---------------------------------------------------------------------- Commercial paper $ 685,067 $ 662,802 Bank and other borrowings 309,519 355,552 ---------------------------------------------------------------------- $ 994,586 $ 1,018,354 ----------------------------------------------------------------------
On September 5, 1995, the company amended the line of credit agreements which support its domestic commercial paper programs, reducing availability and extending maturity dates. Total availability under the credit agreements is $2.0 billion, compared to $2.3 billion under the Fiscal 1995 agreements. Total domestic commercial paper had a weighted average interest rate during 1996 of 5.8% and at year-end of 5.4%. The weighted average interest rate during 1995 was 5.3% and at year-end was 6.1%. The $1.5 billion of short-term credit lines that were set to expire in September 1995 were reduced to $1.2 billion and extended to September 1996. It is expected that the company will extend the maturity date of these lines prior to their expiration. The maturity date of the remaining $800.0 million of line of credit agreements was extended from September 1999 to September 2000. As of May 1, 1996, $800.0 million of domestic commercial paper outstanding is classified as long-term debt due to the long-term nature of the supporting line of credit agreements. At May 3, 1995, a similar amount of domestic commercial paper was classified as long-term. As of May 1, 1996 and May 3, 1995, domestic commercial paper of $450.0 million was privately placed. 52 The company also maintains a commercial paper program in Canada. Outstanding Canadian commercial paper, which is classified as short-term debt, was $1.1 million as of May 1, 1996 and $45.1 million as of May 3, 1995. The weighted average interest rate for Canadian commercial paper during 1996 was 6.1%, and at year-end was 5.2%. The weighted average interest rate during 1995 was 6.6%, and at year- end was 8.2%. The company had $639.7 million of other foreign lines of credit available at year-end, principally for overdraft protection. Total short-term debt had a weighted average interest rate during 1996 of 6.5% and at year-end of 6.2%. The weighted average interest rate on short-term debt during 1995 was 6.1% and at year-end was 6.7%.
Maturity Long-Term (Dollars Range of (Fiscal in thousands) Interest Year) 1996 1995 ------------------------------------------------------------------------- United States Dollars: Commercial paper Variable 2001 $ 800,000 $ 800,000 Senior unsecured notes 5.50-6.88% 1998-2003 749,532 749,386 Eurodollar bonds 7.50-8.00 1997-2000 628,119 629,834 Revenue bonds 5.63-11.75 1997-2003 10,781 10,814 Promissory notes 5.69-10.00 1997-2005 60,154 27,579 Other 8.10 1997 6,797 7,527 ------------------------------------------------------------------------- 2,255,383 2,225,140 ------------------------------------------------------------------------- Foreign Currencies (U.S. Dollar Equivalents): Promissory notes: Pounds sterling 8.85% 1997-2006 51,100 65,781 Italian lire 4.90-16.25 1997-2004 34,487 27,673 Other 4.51-14.90 1997-2005 28,272 64,128 ------------------------------------------------------------------------- 113,859 157,582 ------------------------------------------------------------------------- Total long-term debt 2,369,242 2,382,722 Less portion due within one year 87,583 55,937 ------------------------------------------------------------------------- $ 2,281,659 $ 2,326,785 -------------------------------------------------------------------------
The amount of long-term debt that matures in each of the four years succeeding 1997 is: $580.7 million in 1998, $26.8 million in 1999, $580.0 million in 2000 and $815.4 million in 2001. On January 5, 1995, the company issued $300.0 million of three-year 8.0% notes in the international capital markets. The proceeds from the notes were utilized to repay domestic commercial paper. The company entered into an interest rate swap agreement that effectively converted the fixed interest rate associated with the notes to a variable rate based on LIBOR. Due to favorable market conditions, the company terminated the interest rate swap agreement and is amortizing the resulting gain over the remaining life of the notes, producing an effective borrowing rate of 7.3%. On April 26, 1995, the company issued $250.0 million of five-year 7.5% notes in the international capital markets. The proceeds from these notes were used to repay a portion of the privately placed commercial paper borrowings incurred in connection with the acquisition of the Pet Food Business. In 1993, the company's United Kingdom affiliate privately placed with various banks Pds125.0 million ($197.0 million) aggregate principal of 8.85% notes due during 2013. In April 1993, an affiliated company paid Pds70.6 million ($111.3 million) for an interest in the notes. The notes are shown in the balance sheet as a net amount outstanding of Pds33.2 million ($50.2 million), which will be fully amortized in four years. The effective interest rate was 8.3% at May 1, 1996 and May 3, 1995. 53 - ------------------------------------------------------------------------------ 6. SHAREHOLDERS' EQUITY Capital Stock: On September 12, 1995, the company's Board of Directors authorized a three-for-two common stock split, effective October 3, 1995. There was no adjustment in the stock's par value or the total number of authorized common shares. All common share and per share amounts reflect the three-for-two common stock split. Shareholders' equity has been restated to give retroactive recognition to the stock split for all periods presented by reclassifying from additional capital to common stock the par value of the additional shares arising from the split. The preferred stock outstanding is convertible at a rate of one share of preferred stock into 13.5 shares of common stock which reflects the three-for-two stock split. The company can redeem the stock at $28.50 per share. On May 1, 1996, there were authorized, but unissued, 2,200,000 shares of third cumulative preferred stock for which the series had not been designated. Employee Stock Ownership Plan (ESOP): The company established an ESOP in 1990 to replace in full or in part the company's cash-matching contributions to the H.J. Heinz Company Employees Retirement and Savings Plan, a 401 (k) plan for salaried employees. Matching contributions to the 401(k) plan are based on a percentage of the participants' contributions, subject to certain limitations. To finance the plan, the ESOP borrowed $50.0 million directly from the company in 1990. The loan is in the form of a 15-year variable-rate interest-bearing note (an average of 5.5%, 5.6% and 4.2% for 1996, 1995 and 1994, respectively) and is included in the company's Consolidated Balance Sheets as unearned compensation. The proceeds of the note were used to purchase 2,366,862 shares of treasury stock from the company at approximately $21.13 per share. The stock held by the ESOP is released for allocation to the participants' accounts over the term of the loan as company contributions to the ESOP are made. The company contributions are reported as compensation and interest expense. Compensation expense related to the ESOP for 1996, 1995 and 1994 was $2.3 million, $3.7 million and $3.3 million, respectively. Interest expense was $1.5 million, $1.9 million and $1.7 million for 1996, 1995 and 1994, respectively. The company's contributions to the ESOP and the dividends on the company stock held by the ESOP are used to repay loan interest and principal. The dividends on the company stock held by the ESOP were $2.1 million, $2.5 million and $1.9 million in 1996, 1995 and 1994, respectively. The ESOP shares outstanding at May 1, 1996 were as follows: unallocated 958,141; committed-to-be-released 29,553; and allocated 1,036,904. Shares held by the ESOP are considered outstanding for purposes of calculating the company's net income per share. Cumulative Translation Adjustments: Changes in the cumulative translation component of shareholders' equity result principally from translation of financial statements of foreign subsidiaries into U.S. dollars. The reduction in shareholders' equity related to the translation component decreased $1.4 million in 1996, decreased $107.0 million in 1995 and increased $70.7 million in 1994. 54 Unfunded Pension Obligation: An adjustment for unfunded foreign pension obligations in excess of unamortized prior service costs was recorded, net of tax, as a reduction in shareholders' equity. (See Note 9 to the Consolidated Financial Statements.)
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 28, 1993 $ 438 $ 107,774 431,096 $ 1,046,905 49,554 $ 134,384 Reacquired - - - 222,582 9,713 - Conversion of preferred into common stock (40) - - (985) (54) (945) Stock options exercised - - - (27,605) (1,581) 267* Other, net - - - (1,720) (92) 549 - ------------------------------------------------------------------------------------------------------------------------------- Balance April 27, 1994 $ 398 $ 107,774 431,096 $ 1,239,177 57,540 $ 134,255 Reacquired - - - 273,671 11,456 - Conversion of preferred into common stock (40) - - (976) (54) (937) Stock options exercised, net of shares tendered for payment - - - (53,305) (3,035) (12,264)* Other, net - - - (7,843) (320) 237 - ------------------------------------------------------------------------------------------------------------------------------- Balance May 3, 1995 $ 358 $ 107,774 431,096 $ 1,450,724 65,587 $ 121,291 Reacquired - - - 155,200 4,806 - Conversion of preferred into common stock (87) - - (2,674) (117) (2,587) Stock options exercised, net of shares tendered for payment - - - (101,751) (7,747) 35,797* Other, net - - - (633) (31) 101 - ------------------------------------------------------------------------------------------------------------------------------- Balance May 1, 1996 $ 271 $ 107,774 431,096 $ 1,500,866 62,498 $ 154,602 - ------------------------------------------------------------------------------------------------------------------------------- Authorized Shares--May 1, 1996 27 600,000 - -------------------------------------------------------------------------------------------------------------------------------
* Includes income tax benefit resulting from exercised stock options. - ------------------------------------------------------------------------------ 7. SUPPLEMENTAL CASH FLOWS INFORMATION
(Dollars in thousands) 1996 1995 1994 ------------------------------------------------------------------------ Cash Paid During The Year For: Interest $ 308,564 $ 210,610 $ 146,951 Income taxes 143,646 251,358 153,000 ------------------------------------------------------------------------ Details of Acquisitions: Fair value of assets $ 269,907 $ 1,359,028 $ 102,382 Liabilities* 113,697 179,942 6,697 ------------------------------------------------------------------------ Cash paid 156,210 1,179,086 95,685 Less cash acquired 204 267 - ------------------------------------------------------------------------- Net cash paid for acquisitions $ 156,006 $ 1,178,819 $ 95,685 -------------------------------------------------------------------------
*Includes notes to sellers of $37.4 million in 1996. 55 - ------------------------------------------------------------------------------ 8. EMPLOYEES' STOCK OPTION PLANS AND MANAGEMENT INCENTIVE PLANS Under the company's stock option plans, officers and other key employees may be granted options to purchase shares of the company's common stock. The option price on all outstanding options is equal to the fair market value of the stock at the date of grant. The shares authorized but not granted under the company's stock option plans were 3,421,235 at May 1, 1996 and 5,459,835 at May 3, 1995. Data regarding the company's stock option plans follows:
Range of Shares Option Price -------------------------------------------------------------- Shares under option April 28, 1993 30,186,663 $ 5 7/8-28 7/8 Options granted 14,201,250 20 5/8-26 1/2 Options exercised (1,581,345) 6 3/8-25 1/8 Options surrendered (710,250) 23-28 7/8 -------------------------------------------------------------- Shares under option April 27, 1994 42,096,318 $ 5 7/8-28 7/8 Options granted 3,568,050 21 3/4-27 3/4 Options exercised (3,038,937) 5 7/8-25 7/8 Options surrendered (454,500) 21 3/4-28 7/8 -------------------------------------------------------------- Shares under option May 3, 1995 42,170,931 $ 9 1/4-28 7/8 Options granted 2,154,100 28 3/8-33 Options exercised (11,713,653) 9 1/4-28 7/8 Options surrendered (115,500) 22 1/8-27 3/4 -------------------------------------------------------------- Shares under option May 1, 1996 32,495,878 $ 12 5/8-33 -------------------------------------------------------------- Options exercisable at: May 3, 1995 17,754,381 May 1, 1996 12,252,228 --------------------------------------------------------------
Common stock reserved for options totaled 35,917,113 shares as of May 1, 1996 and 47,630,766 shares as of May 3, 1995. On June 12, 1996, the Board of Directors adopted, subject to the approval of the shareholders at the annual meeting in September 1996, a new stock option plan providing for the grant of up to 15.0 million shares of common stock at any time over the next 10 years. In general, the terms of the 1996 plan are similar to the company's other stock option plans. Also on June 12, 1996, options for 4.3 million shares were granted, of which 2.0 million were contingently granted under the 1996 plan. The company's management incentive plan covers officers and other key employees. Participants may elect to be paid on a current or deferred basis. The aggregate amount of all awards may not exceed certain limits in any year. Compensation under the management incentive plans was approximately $37 million in 1996, $24 million in 1995 and $12 million in 1994. - ------------------------------------------------------------------------------ 9. RETIREMENT PLANS The company maintains retirement plans for the majority of its employees. Current defined benefit plans are provided primarily for domestic union and foreign employees. Benefits are based on years of service and compensation or stated amounts for each year of service. Plan assets are primarily invested in equities and fixed income securities. The company's funding policy for domestic defined benefit plans is to contribute annually not less than the ERISA minimum funding standards nor more than the maximum amount which can be deducted for federal income tax purposes. Generally, foreign defined benefit plans are funded in amounts sufficient to comply with local regulations and ensure adequate funds to pay benefits to retirees as they become due. 56 Effective in 1993, the company discontinued future benefit accruals under the defined benefit plans for domestic non-union hourly and salaried employees and expanded its defined contribution plans for these same employees. The company maintains defined contribution plans for the majority of its domestic non-union hourly and salaried employees. Defined contribution benefits are provided through company contributions that are a percentage of the participant's pay based on age, with the contribution rate increasing with age, and matching contributions based on a percentage of the participant's contributions to the 401 (k) portion of the plan. (The company's matching contributions for salaried employees are provided under the ESOP. See Note 6 to the Consolidated Financial Statements.) In addition, certain non-union hourly employees receive supplemental contributions, which are paid at the discretion of the company. Total pension cost consisted of the following:
(Dollars in thousands) 1996 1995 1994 ----------------------------------------------------------------------- Defined Benefit Plans: Benefits earned during the year $ 13,675 $ 14,648 $ 15,215 Interest cost on projected benefit obligation 74,623 66,734 66,706 Actual return on plan assets (200,592) (26,254) (98,673) Net amortization and deferral 117,461 (56,285) 25,028 ----------------------------------------------------------------------- 5,167 (1,157) 8,276 Defined contribution plans (excluding the ESOP) 25,946 17,222 16,493 ----------------------------------------------------------------------- Total pension cost $ 31,113 $ 16,065 $ 24,769 -----------------------------------------------------------------------
The following table sets forth the combined funded status of the company's principal defined benefit plans at May 1, 1996 and May 3, 1995.
Plans for Which Plans for Which Assets Exceed Accumulated Benefits Accumulated Benefits Exceed Assets - ------------------------------------------------------------------------------ (Dollars in thousands) 1996 1995 1996 1995 - ------------------------------------------------------------------------------ Actuarial present value of: Accumulated benefit obligation, primarily vested $ 737,026 $ 774,830 $ 187,275 $ 84,510 Additional obligation for projected compensation increases 26,725 29,070 27,896 19,683 - ------------------------------------------------------------------------------ Projected benefit obligation 763,751 803,900 215,171 104,193 Plan assets, at fair value 962,510 920,591 138,505 48,548 - ------------------------------------------------------------------------------ Projected benefit obligation less than (in excess of) assets 198,759 116,691 (76,666) (55,645) Unamortized prior service cost 71,824 75,380 7,735 2,473 Unamortized actuarial (gains) losses, net (60,439) 47,947 75,944 41,806 Unamortized net (assets) liabilities at date of adoption (23,366) (34,145) (1,310) 2,722 Additional minimum liability - - (54,472) (4,827) - ------------------------------------------------------------------------------ Prepaid (accrued) pension costs $ 186,778 $ 205,873 $ (48,769) $ (13,471) - ------------------------------------------------------------------------------
The 1996 adjustment for unfunded foreign pension obligations in excess of the unamortized prior service costs was recorded, net of tax, as a reduction in shareholders' equity of $32.6 million. The remaining portion of the unfunded obligation was recorded as other long-term assets and deferred taxes in the amounts of $2.8 million and $19.1 million, respectively. 57 The weighted average rates used for the years ended May 1, 1996, May 3, 1995 and April 27, 1994 in determining the net pension costs and projected benefit obligations for defined benefit plans were as follows:
1996 1995 1994 ------------------------------------------------------------------------ Expected rate of return on plan assets 9.4% 10.0% 10.0% Discount rate 8.4% 8.7% 8.3% Compensation increase rate 5.3% 5.2% 4.8% ------------------------------------------------------------------------
Assumptions for foreign defined benefit plans are developed on a basis consistent with those for U.S. plans, adjusted for prevailing economic conditions. - ------------------------------------------------------------------------------ 10. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS AND OTHER POSTEMPLOYMENT BENEFITS The company and certain of its subsidiaries provide health care and life insurance benefits for retired employees and their eligible dependents. Certain of the company's U.S. and Canadian employees may become eligible for such benefits. In general, postretirement medical coverage is provided for eligible non-union hourly and salaried employees with at least 10 years of service rendered after the age of 45 and certain eligible union employees who retire with an immediate pension benefit. The company currently does not fund these benefit arrangements and may modify plan provisions or terminate plans at its discretion. Effective January 1, 1994, certain changes were made to postretirement medical benefits offered to U.S. salaried and non-union hourly employees who retire after May 1, 1994. Those retirees were required to share in the cost of providing these benefits at percentages increasing from 20% in 1994 to 100% in 1998. The resulting curtailment gain was immaterial. Effective May 1, 1996, the retiree cost-sharing rate will be held at 50%. Net postretirement costs consisted of the following:
(Dollars in thousands) 1996 1995 1994 ---------------------------------------------------------------------- Postretirement benefits earned during the year $ 2,736 $ 2,700 $ 6,512 Interest cost on accumulated postretirement benefit obligation 13,350 13,249 15,740 Net amortization and deferral (6,583) (5,165) (2,986) ---------------------------------------------------------------------- Net postretirement benefit costs $ 9,503 $ 10,784 $ 19,266 ----------------------------------------------------------------------
58 The following table sets forth the combined status of the company's postretirement benefit plans at May 1, 1996 and May 3, 1995.
(Dollars in thousands) 1996 1995 ------------------------------------------------------------------- Accumulated postretirement benefit obligation: Retirees and spouses $ 109,006 $ 121,380 Employees currently eligible to retire 21,756 17,614 Employees not yet eligible to retire 31,899 36,763 ------------------------------------------------------------------- Total accumulated postretirement benefit obligation 162,661 175,757 Unamortized prior service cost 21,380 38,510 Unrecognized net gain 34,953 15,406 ------------------------------------------------------------------- Accrued postretirement benefit obligation 218,994 229,673 Current portion, included in other accrued liabilities 9,000 9,000 ------------------------------------------------------------------- Non-pension postretirement benefits $ 209,994 $ 220,673 -------------------------------------------------------------------
The weighted average discount rate used in the calculation of the accumulated postretirement benefit obligation and the net postretirement benefit cost was 8.1% in 1996 and 8.4% in 1995. The assumed annual composite rate of increase in the per capita cost of company-provided health care benefits begins at 9.9% for 1997, gradually decreases to 5.6% by 2007, and remains at that level thereafter. A 1% increase in these health care cost trend rates would cause the accumulated postretirement obligation to increase by $20.5 million, and the aggregate of the service and interest components of 1996 net postretirement benefit costs to increase by $2.8 million. In 1995, the company adopted FAS No. 112, "Employers' Accounting for Postemployment Benefits." This statement requires recognition of benefits provided by an employer to former or inactive employees after employment but before retirement. The impact of the adoption of this standard did not have a material impact on the company's financial position or results of operations. - ------------------------------------------------------------------------------ 11. FINANCIAL INSTRUMENTS Interest Rate Swap Agreements: As of May 1, 1996 and May 3, 1995, the notional values and unrealized gains or losses related to such agreements held by the company were not material. Foreign Currency Contracts: As of May 1, 1996 and May 3, 1995, the company held currency swap contracts with an aggregate notional amount of approximately $400 million and $102 million, respectively. These contracts have maturity dates extending from 1997 through 2002. The company also had separate contracts to purchase certain foreign currencies as of May 1, 1996 and May 3, 1995 totaling $444.8 million and $258.9 million, respectively, and to sell certain foreign currencies totaling $66.5 million and $69.6 million, respectively, most of which mature within one year of the respective fiscal year-end. Net unrealized gains and losses associated with the company's foreign currency contracts as of May 1, 1996 and May 3, 1995 were not material. Commodity Contracts: As of May 1, 1996 and May 3, 1995, the notional values and unrealized gains or losses related to commodity contracts held by the company were not material. Fair Value of Financial Instruments: The company's significant financial instruments include cash and cash equivalents, short- and long-term investments, short- and long-term debt, interest rate swap agreements, currency exchange agreements and guarantees. 59 In evaluating the fair value of significant financial instruments, the company generally uses quoted market prices of the same or similar instruments or calculates an estimated fair value on a discounted cash flow basis using the rates available for instruments with the same remaining maturities. As of May 1, 1996 and May 3, 1995, the fair value of financial instruments held by the company approximated the recorded value. Effective April 28, 1994, the company adopted FAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities." FAS No. 115 requires that the carrying value of certain investments be adjusted to their fair value. The adoption of FAS No. 115 had no effect on the company's financial position or results of operations. The company's investments are considered to be "available-for- sale" securities and are principally debt securities issued by foreign governments. Concentrations of Credit Risk: Counterparties to currency exchange and interest rate derivatives consist of large major international financial institutions. The company continually monitors its positions and the credit ratings of the counterparties involved and, by policy, limits the amount of credit exposure to any one party. While the company may be exposed to potential losses due to the credit risk of non-performance by these counterparties, losses are not anticipated. Concentrations of credit risk with respect to accounts receivable are limited due to the large number of customers, generally short payment terms, and their dispersion across geographic areas. - ------------------------------------------------------------------------------ 12. QUARTERLY RESULTS (UNAUDITED)
1996 - ---------------------------------------------------------------------------------------------------------------------------- (Dollars in thousands, except per share data) First Second Third Fourth Total - ---------------------------------------------------------------------------------------------------------------------------- Sales $ 2,094,293 $ 2,288,277 $ 2,193,138 $ 2,536,557 $ 9,112,265 Gross profit 774,308 822,931 812,308 927,361 3,336,908 Net income 174,469 158,167 156,484 170,199 659,319 Per Common Share Amounts: Net income $ 0.46 $ 0.42 $ 0.42 $ 0.45 $ 1.75 Dividends 0.24 0.26 1/2 0.26 1/2 0.26 1/2 1.03 1/2 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 $ 0.41 $ 0.37 $ 0.38 $ 0.43 $ 1.59 Dividends 0.22 0.24 0.24 0.24 0.94 - ---------------------------------------------------------------------------------------------------------------------------
Fourth-quarter 1996 results include gains related to the sale of the Weight Watchers Magazine ($0.02 per share) and the sale of two regional dry pet food product lines ($0.02 per share) and a charge for restructuring costs at certain overseas affiliates ($0.01 per share). Fourth-quarter 1996 earnings also benefited from a lower effective tax rate resulting from the recognition of tax losses overseas and increased profits from operations in lower tax rate jurisdictions ($0.04 per share). (See Note 4 to the Consolidated Financial Statements.) Fourth-quarter 1995 results contain an additional week of activity due to a 53-week fiscal year. 60 - ------------------------------------------------------------------------------ 13. COMMITMENTS AND CONTINGENCIES Legal Matters: On December 31, 1992, a food wholesale distributor filed suit against the company and its principal competitors in the U.S. baby food industry. Subsequent to that date, several similar lawsuits were filed in the same court and have been consolidated into a class action suit. The complaints, each of which seeks an injunction and unspecified treble money damages, allege a conspiracy to fix, maintain and stabilize the prices of baby food. Related suits have also been filed in Alabama and California state courts, seeking to represent a class of indirect purchasers of baby food in the respective states. The defendants have filed a motion for summary judgment to which the plaintiffs have filed a response. The company believes all of the suits are without merit and will defend itself vigorously against them. Certain other claims have been filed against the company or its subsidiaries and have not been finally adjudicated. The above-mentioned suits and claims, when finally concluded and determined, in the opinion of management, based upon the information that it presently possesses, will not have a material adverse effect on the company's consolidated financial position or results of operations. Lease Commitments: Operating lease rentals for warehouse, production and office facilities and equipment amounted to approximately $87.1 million in 1996, $89.5 million in 1995 and $94.0 million in 1994. Future lease payments for non-cancellable operating leases as of May 1, 1996 totaled $261.0 million (1997-$55.3 million, 1998- $48.8 million, 1999-$38.9 million, 2000-$32.3 million, 2001-$23.6 million and thereafter-$62.1 million). - ------------------------------------------------------------------------------ 14. ADVERTISING COSTS Advertising costs for fiscal years 1996, 1995 and 1994 were $415.7 million, $338.6 million and $341.7 million, respectively. 61 RESPONSIBILITY STATEMENTS - ------------------------------------------------------------------------------ RESPONSIBILITY FOR FINANCIAL STATEMENTS Management of H.J. Heinz Company is responsible for the preparation of the financial statements and other information included in this annual report. The financial statements have been prepared in conformity with generally accepted accounting principles, incorporating management's best estimates and judgments, where applicable. Management believes that the company's internal control systems provide reasonable assurance that assets are safeguarded, transactions are recorded and reported appropriately, and policies are followed. The concept of reasonable assurance recognizes that the cost of a control procedure should not exceed the expected benefits. Management believes that its systems provide this appropriate balance. An important element of the company's control systems is the ongoing program to promote control consciousness throughout the organization. Management's commitment to this program is emphasized through written policies and procedures (including a code of conduct), an effective internal audit function and a qualified financial staff. The company engages independent public accountants who are responsible for performing an independent audit of the financial statements. Their report, which appears herein, is based on obtaining an understanding of the company's accounting systems and procedures and testing them as they deem necessary. The company's Audit Committee is composed entirely of outside directors. The Audit Committee meets regularly, and when appropriate separately, with the independent public accountants, the internal auditors and financial management to review the work of each and to satisfy itself that each is discharging its responsibilities properly. Both the independent public accountants and the internal auditors have unrestricted access to the Audit Committee. - ------------------------------------------------------------------------------ REPORT OF INDEPENDENT ACCOUNTANTS To the Shareholders of H.J. Heinz Company: We have audited the accompanying Consolidated Balance Sheets of H.J. Heinz Company and Subsidiaries at May 1, 1996 and May 3, 1995, and the related Consolidated Statements of Income, Retained Earnings and Cash Flows for each of the three years in the period ended May 1, 1996. These financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of H.J. Heinz Company and Subsidiaries at May 1, 1996 and May 3, 1995, and the consolidated results of their operations and their cash flows for each of the three years in the period ended May 1, 1996, in conformity with generally accepted accounting principles. /s/ Coopers & Lybrand L.L.P. 600 Grant Street Pittsburgh, Pennsylvania June 18, 1996 62 EX-21 5 SUBSIDIARIES OF H.J. HEINZ CO. 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 Alimentos Pilar S.A. Argentina The All American Gourmet Company State of Delaware Crestar Food Products, Inc. State of Delaware Earth's Best, Inc. State of Delaware Ets. Paul Paulet France Gaines Pet Food Corp. State of Delaware Heinz Bakery Products, Inc. State of Delaware Heinz Iberica S.A. Spain Heinz India Private Ltd. India Heinz Italia, S.p.A. Italy Heinz Japan Ltd. Japan Heinz South Africa (Pty) Limited South Africa Heinz-UFE Ltd. People's Republic of China Heinz Win Chance Ltd. Thailand H.J. Heinz (Botswana Proprietary) Ltd. Botswana H.J. Heinz B.V. Netherlands H.J. Heinz Company Australia Limited Australia H.J. Heinz Company of Canada Ltd. Canada H.J. Heinz Company Limited United Kingdom H.J. Heinz Credit Company State of Delaware Olivine Industries (Private) Limited Zimbabwe Ore-Ida Foods, Inc. State of Delaware Portion Pac, Inc. State of Ohio Pro Pastries Inc. Canada Seoul-Heinz Ltd. Republic of Korea Star-Kist Foods, Inc. State of California Heinz-Wattie Ltd. New Zealand Weight Watchers Gourmet Food Company State of Delaware Weight Watchers International, Inc. Commonwealth of Virginia
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 1, 1996, and to sign any and all amendments to such Annual Report, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as such person might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or such persons' or person's substitute or substitutes, may lawfully do or cause to be done by virtue hereof. This Power of Attorney has been signed below as of the 10th day of July, 1996 by the following persons in the capacities indicated. Signature Title --------- ----- /s/ Anthony J. F. O'Reilly Chairman of the Board and Chief - ---------------------------------- Executive Officer and Director Anthony J. F. O'Reilly (Principal Executive Officer) /s/ David R. Williams Executive Vice President - Finance - ----------------------------------- and Chief Financial Officer and David R. Williams Director (Principal Financial Officer) /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 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-K FOR THE FISCAL YEAR ENDED MAY 1, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 U.S. DOLLARS YEAR MAY-01-1996 MAY-04-1995 MAY-01-1996 1 90,064 18,316 1,207,874 17,298 1,493,963 3,046,692 4,220,044 1,603,216 8,623,691 2,715,122 2,281,659 0 271 107,774 2,598,712 8,623,691 9,112,265 9,112,265 5,775,357 5,775,357 0 0 277,411 1,023,661 364,342 659,319 0 0 0 659,319 1.75 1.74 THE APPROPRIATE AMOUNTS HAVE BEEN ADJUSTED TO REFLECT THE THREE-FOR-TWO STOCK SPLIT, WHICH WAS EFFECTIVE OCTOBER 3, 1995.
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