Item 1. Business.
Principal Products
The registrant and its subsidiaries (hereinafter collectively referred to as the "Company") mill and sell graded and finished balsa lumber in standard sizes and balsa wood strips and blocks. "Standard sizes" of balsa lumber are measured in boardfeet (12" x 12" x 1") for the English system of measure or in cubic meters for the metric system of measure. Shipments to Europe, (except the U.K.) and Japan are made in cubic meters while shipments to the U.S. and the U.K. are in boardfeet. The Company, for production and statistical purposes, converts all metric measurements into boardfeet, thus the Company's "standard" is boardfeet. The Company also manufactures and sells custom-made bonded panels, blocks and beams of balsa wood, and a flexible balsa wood block mat called "Contourkore ."
Glued-up balsa blocks are marketed in two ways. A portion is sold directly to customers in block or panel form, and the balance is shipped to the Company's factory in Northvale, N.J. for further processing into Contourkore and other products. Blocks and Contourkore are used by the Company's customers to manufacture a variety of products by laminating metal or fiberglass reinforced plastic skins to both sides of the balsa, thereby creating a sandwich structure in which balsa is the core or center. The products manufactured by the Company's customers include fiberglass boats, aircraft cargo pallets, aircraft flooring, fiberglass storage and processing tanks and fiberglass tub and shower bottoms. Balsa lumber is used mostly by the hobby industry to manufacture model airplanes.
In addition, the Company sells a non-balsa continuous strand fabric, imported from Holland and Japan and resold without further manufacturing. This product is marketed as "Coremat" and "BaltekMat" to the pleasure boat industry.
In September 1995 the Company entered into an agreement with Alusuisse Airex AG of Sins, Switzerland, a division of Alusuisse, to become the sole North American source of Airex(R) (a registered trademark of Airex AG) and Airlite(TM) structural PVC foam products. These additional products, together with its Balsa products, should solidify the Company's leadership as a complete supplier to the composite structural core market and result in growth opportunities for the future.
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The Company is also in the aquaculture business, specifically shrimp farming in Ecuador, South America. This operation consists of a hatchery, a farm and a packing plant. Shrimp larvae are supplied by the hatchery to the farm and after harvest, transferred to the packing plant for processing and shipment to customers in the United States and Europe.
All of the Company's balsa and shrimp are produced in Ecuador. The dependence on foreign countries for raw materials represents some inherent risks. However, the Company, or its predecessors, have maintained uninterrupted operations in Ecuador for over 50 years. The Company does not consider its reliance on Ecuador to represent an undue business risk; in fact, the Company believes that operating in Ecuador is one of its strengths, where quality raw materials are produced at a reasonable cost in a atmosphere conducive to business.
Principal Markets and Methods of Distribution
The Company's balsa products are sold throughout the United States, Canada, Europe, Japan, and Australia to approximately 1,600 ultimate users. The Company's salesmen are used extensively in the sale of its balsa products. Approximately 40% of its balsa product sales are made by the Company directly. The remainder of the sales are handled through regional distributors in the United States, Europe, Canada, and Japan. Sales of Contourkore to customers outside the United States are handled through a wholly-owned Foreign Sales Corporation.
In 1996, approximately 32% of all the shrimp production was sold to the U.S. market through food brokers; the balance was sold to the European market.
Competitive Conditions
As part of their overall business, other companies, with aggregate facilities and financial resources substantially greater than those of the Company, manufacture and sell various natural and synthetic products for nearly all the purposes for which balsa lumber and products are sold by the Company. Some of these competitive products are produced and sold at a lower cost than the Company's balsa lumber and products, and sales of these competing products are substantially greater than the Company's sales of balsa lumber and products.
The Company's shrimp business competes against many larger companies which produce shrimp through similar methods in addition to fishing for shrimp in the traditional method of trawling.
Material Customer
During the period ended December 31, 1995 and 1994, the Company had sales to one customer in excess of 10% of the Company's consolidated revenues; no customer accounted for more than 10% of revenues in 1996.
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Backlog
As of December 31, 1996, the Company had a backlog of orders believed to be firm in the total amount of $7,465,000 all of which is reasonably expected to be filled within the current fiscal year.
As of December 31, 1995, the Company had a backlog of orders believed to be firm in the total amount of $5,955,000.
Sources and Availability of Raw Materials
The Company acquires, partly from its own plantations and partly from others, substantially all of its balsa wood from western and coastal Ecuador, accessible by roads so that the balsa lumber can be transported by truck to its sawmills. The Company considers the timber presently standing in this area, combined with its planned plantation expansion program, to be ample to supply all the Company's requirements in the foreseeable future. In addition to the balsa produced in Ecuador, the Company also receives small quantities of balsa from other Latin American countries. The resins, fiberglass and other materials used in the Company's manufacturing processes are available from numerous commercial sources. To date the Company has experienced no difficulty in obtaining such materials needed for its operations.
The Company owns and operates a shrimp farm and a shrimp hatchery in Ecuador for the production of a steady and plentiful supply of shrimp. The hatchery supplies substantially all of the larvae required by the Company's ponds. The Company also owns a shrimp packing company in Ecuador, thereby achieving complete vertical integration of the shrimp business.
Patents, Trademarks and Licenses
The Company features its registered trademark "Belcobalsa(R)" for lumber, dimension stock, and bonded panels and blocks, "Contourkore(R)" "LamPrep(R)" and "AL-600(R)" for the flexible wood block mat, "Durakore(R)", a balsa hardwood composite, "D100(R) " for end-grain panels and "Decolite(R)" a balsa composite panel used as an alternative to plywood, and low-density laminate bulkers, marketed as "BaltekMat(R)" and "Firet Coremat(R)".
The Company also features "Airlite(TM)", a cross-linked PVC foam, and "Airex(R)" (registered trademark of Airex AG) a linear foam.
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Estimated Research Costs
The Company has incurred approximately $350,000 during 1996 for research and development, compared to expenditures of $415,000 in 1995 and $447,000 in 1994. All expenditures are related to the balsa division and include customer service activities. The Company continues to actively explore possible new applications and new manufacturing processes for its products.
Environmental Impact
The Company has experienced no material impact upon its capital expenditures, earnings or competitive position as a result of its compliance with federal, state or local provisions relating to the protection of the environment. Balsa is not a rainforest species, nor does it grow in the rainforest. It is usually harvested within five years. The fast growth rate makes balsa similar to short-cycle agricultural crops and an ideal tree species for forest plantations.
Employees
The Company has approximately 994 employees in Ecuador, 127 in the United States and 10 in Europe, aggregating 1,131 employees.
Seasonality
The Company's business is not seasonal.
Classes of Products
The following table sets forth the amount and percentage of net sales represented by each of the Company's product classes in the three years ended December 31, 1996 (dollars in thousands):
Balsa Wood Year Products Shrimp Total - ---- -------- ------ -----
1994 $32,833 $7,297 $40,130 82% 18% 100%
1995 $36,420 $9,364 $45,784 79% 21% 100%
1996 $38,630 $9,736 $48,366 80% 20% 100%
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Segment Information
The Company is engaged in two lines of business, that of manufacturing and supplying balsa wood and balsa wood products, laminate bulkers and PVC foams, used principally as the core material in various industries, and in the aquaculture business, namely shrimp farming in Ecuador.
Reference is made to the information set forth in Note 11 to the Notes to Consolidated Financial Statements, Part II, Item 8 hereof, with respect to assets and operating results for different business segments.
Foreign Operations
The Company, through its Ecuadorean subsidiaries, owns and operates five woodworking plants and approximately 13,783 acres of forest land in Ecuador. In addition, the Company owns and operates a shrimp farm on approximately 2,000 acres, a shrimp hatchery and a shrimp packing plant.
At the Company's woodworking plants, rough balsa lumber is received from independent loggers and then processed into finished lumber and other manufactured products.
The Company's shrimp ponds are stocked with larvae. After feeding, controlling the pond environment and monitoring the growth of the shrimp for a period of approximately six months, the shrimp are harvested, frozen, packed and sold for export.
The Company, through its European subsidiaries, operates sales offices in France, the United Kingdom and Denmark.
Reference is made to the information set forth in Note 11 to the Notes to Consolidated Financial Statements, Part II, Item 8 hereof, with respect to assets and operating results by geographic areas.
Foreign Sales
Approximately 31% of the Company's net sales for the year ended December 31, 1996 was derived from sales to customers outside the United States.
No prediction can be made as to any future increase or decrease of the Company's foreign business. The Company has experienced differences in profitability between foreign and domestic sales due to the changing value of the U.S. dollar in relation to the foreign currencies of countries where its products are sold.
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Item 2.

Item 2. Properties.
The Company owns or leases the properties indicated in the following table:
All of the above properties except the shrimp farming land, hatchery and packing plant are used in the balsa wood business.
The lease of the property at Northvale, New Jersey continues until February 28, 2002, at an average annual rental of approximately $462,000. The lease of the Company's office space in Paris continues until March 31, 1998 at an annual rental equivalent to approximately $27,000. The lease of the Company's office in Croydon, U.K. runs until December 25, 2008 at an annual rental of approximately $14,000.
All of the Company's properties, plants and equipment are considered to be presently sufficient for their respective purposes.
Item 3.

Item 3. Legal Proceedings.
Not Applicable.
Item 4.

Item 4. Submission of Matters to a Vote of Security Holders.
There was no submission of matters to a vote of security holders during the fourth quarter of 1996.
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PART II
Item 5.

Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters.
The Company's common stock trades on the NASDAQ National Market tier of the NASDAQ Stock Market under the Symbol: BTEK. The following is the bid price range for the last two years.
The Company had approximately 191 stockholders of record as of March 3, 1997.
No cash dividends were paid during the past two years.
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Item 6.

Item 6. Selected Financial Data.
Note (a): Excluding deferred income taxes.
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Management's Discussion and Analysis of Item 7.

Item 7. Financial Condition and Results of Operations
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital ratio (current assets divided by current liabilities) increased in 1996 to 2.56:1 from 2.50:1, after decreasing in 1995 from 2.97:1.
Cash was provided and used in varying amounts during the three year period, principally as a result of changes in the elements of current assets and current liabilities and in the amount of cash provided by net income. Inventories increased in 1996 and 1995 but decreased in 1994. The increase in 1996 and 1995 was due to new products and inventory buildup for anticipated increases in sales. The 1994 decrease was caused by greater sales than anticipated.
Cash used in investing activities for the three year period was due to increased investments in balsa plantations, replacement of old equipment, reconstruction of the shrimp ponds and purchase of new equipment required for the manufacture of the Company's new products. The Company has no material commitments for capital expenditures.
In 1996 the Company borrowed $400,000 in the form of a five year term loan to finance equipment purchases. The Company may continue to seek financing for significant capital expenditures in the future. The Company's working capital borrowings decreased in 1996 due to improved cash flow from operations. The working capital debt increased in 1995 due to working capital and investment requirements. In 1994 the company repaid debt of $1,887,000 from funds generated by profits.
The Company had unused lines of credit of $2.5 million with a domestic bank, $1.6 million with Ecuadorean banks and $0.7 million with European banks. The Company expects that future operations and its unused lines of credit will provide sufficient resources to support its planned expansion and to maintain its favorable liquid position.
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
Total sales increased 6%, 14% and 24% in 1996, 1995 and 1994, respectively. The gains in all three years were due to increased demands from all industries using our balsa products together with increases in shrimp sales.
Balsa sales were favorably affected by the continuing recovery of the pleasure boat industry. The pleasure boat industry represented approximately 40% of the Company's 1996 balsa sales. Fluctuating interest rates make it impossible to forecast short or long range trends in the boating industry. The increases in balsa sales in all three years were due to volume increases, and increased sales of value-added products. The Company continues to explore and develop alternative applications for its balsa products.
Shrimp sales were $9,736,000, $9,364,000 and $7,297,000 in 1996, 1995 and 1994, respectively. The increases in all three years were the result of increased yield at the Company's shrimp farm and increased worldwide prices in 1995 and 1994. The Company's program to increase yields at its shrimp farm commenced in the middle of 1993 and has proved successful. The program should be concluded in 1997.
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Cost of products sold as a percentage of sales increased in 1996 after remaining approximately the same in 1995 and 1994. The increase in 1996 was due to reduced shrimp selling prices, start-up expenses of the new form product line and competitive pricing pressure. The Company's Ecuadorian operations were affected in all three years in varying degrees by inflationary pressures on operating expenses partially offset by currency devaluation and operating efficiencies resulting from the 1994 and earlier restructuring. Additionally, 1995 and 1994 benefitted from increased absorption of overhead expenses due to increased production. The Company recorded a special charge of $323,977 in 1994 associated with a decision to reduce costs by making operational and personnel changes at the Company's factories in Ecuador. This charge was effected within the year with no related reserve balance remaining at year end.
Selling, general and administrative expenses as a percentage of sales declined in 1996 by 1% to 20% and was approximately 21% in 1995 as in 1994. The slight decline in 1996 was due primarily to a better absorption of fixed expenses as a result of increased sales. In 1995 and 1994 the Company added sales personnel to market existing and new products and to support efforts to develop new markets and applications. These additions were offset by increased absorption of fixed expenses.
Sales and expenses were slightly affected in all three years by the different exchange rates applied in translating the books of accounts of the Company's European subsidiaries.
Interest expense increased all three years due to rising interest rates in 1995 and 1994 and increased average borrowings during the years ended December 31, 1996, 1995 and 1994.
Translation losses varied greatly during the three year period. Translation losses are caused by the relationship of the U.S. dollar to the foreign currencies in the countries where the Company operates, and arise when translating foreign currency balance sheets into U.S. dollars in order to present consolidated financial statements. Management is unable to forecast the impact of translation gains or losses on future periods due to the unpredictability in the fluctuation of foreign exchange rates.
The effective income tax rate amounted to 31% in 1996, 21% in 1995, and 39% in 1994. Reconciliation of the effective rate with the U.S. statutory rate is detailed in footnote 8 to the financial statements.
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Item 8.

Item 8. Financial Statements and Supplementary Data.
The consolidated financial statements of the registrant and subsidiaries, and supplemental schedule are annexed hereto and made part hereof.
Changes in and Disagreements With Accountants Item 9.

Item 9. on Accounting and Financial Disclosure.
None.
PART III
Item 10.

Item 10. Directors and Executive Officers of the Registrant.
Omitted from this Report since a definitive Proxy Statement, pursuant to Regulation 14A containing the required information, will be filed with the Commission not later than 120 days after the close of registrant's fiscal year.
Item 11.

Item 11. Executive Compensation.
Omitted from this Report since a definitive Proxy Statement, pursuant to Regulation 14A containing the required information, will be filed with the Commission not later than 120 days after the close of the registrant's fiscal year.
Security Ownership of Certain Beneficial Item 12.

Item 12. Owners and Management.
Omitted from this Report since a definitive Proxy Statement, pursuant to Regulation 14A containing the required information, will be filed with the Commission not later than 120 days after the close of the registrant's fiscal year.
Item 13.

Item 13. Certain Relationships and Related Transactions.
Inapplicable.
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PART IV
Exhibits, Financial Statement Item 14.

Item 14. Schedules, and Reports on Form 8-K
(a)(1) and (2) Consolidated Financial Statements and Financial Statement Schedule
See Index to Consolidated Financial Statements and Financial Statement Schedule annexed hereto and made part hereof.
(b) Reports on Form 8-K
No reports on Form 8-K were filed by or on behalf of the registrant for the quarter ended December 31, 1996, the last quarter in the period covered by this Annual Report on Form 10-K.
(c) List of Exhibits
Exhibit No. Item Filing - ----------- ---- ------
3 Articles of Incorporation Pre-Filed (Bylaws)
10 Material Contracts None
21 Subsidiaries of Registrant Filed Herewith
27 Financial Data Schedule Filed Herewith
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SIGNATURES
Pursuant to the requirements of Section 13 of 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.
BALTEK CORPORATION Registrant
By /s/ Jacques Kohn ------------------------------ Jacques Kohn, President
By /s/ Ronald Tassello ------------------------------ Ronald Tassello, Comptroller (Principal Financial officer and Principal accounting officer)
Dated: March 21, 1997
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 and on the date indicated.
By /s/ Margot W. Kohn By /s/ Jacques Kohn -------------------------------- ----------------------- Margot W. Kohn, Jacques Kohn, Director Director
By /s/ Theodore Ness By /s/ Benson J. Zeikowitz -------------------------------- ----------------------- Theodore Ness, Benson J. Zeikowitz, Director Director
Dated: March 21, 1997
BALTEK CORPORATION AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE AS OF DECEMBER 31, 1996 AND 1995 AND FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1996
PREPARED FOR FILING AS PART OF THE ANNUAL REPORT (FORM 10-K) TO THE SECURITIES AND EXCHANGE COMMISSION FOR THE YEAR ENDED DECEMBER 31, 1996
**********
BALTEK CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE PREPARED FOR FILING AS PART OF THE ANNUAL REPORT (FORM 10-K) TO THE SECURITIES AND EXCHANGE COMMISSION YEAR ENDED DECEMBER 31, 1996 - --------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
Consolidated Balance Sheets as of December 31, 1996 and 1995
Consolidated Statements of Income for Each of the Three Years in the Period Ended December 31, 1996
Consolidated Statements of Stockholders' Equity for Each of the Three Years in the Period Ended December 31, 1996
Consolidated Statements of Cash Flows for Each of the Three Years in the Period Ended December 31, 1996
Notes to Consolidated Financial Statements for Each of the Three
Years in the Period Ended December 31, 1996
FINANCIAL STATEMENT SCHEDULE AS OF AND FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1996:
II - Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable regulations of the Securities and Exchange Commission have been omitted because of the absence of the conditions under which they are required or because the required information called for is set forth in the consolidated financial statements or notes thereto.
Deloitte & Touche LLP [GRAPHIC -- COMPANY LOGO] ____________________________________________________________ Two Hilton Court Telephone: (201) 631-7000 P.O. Box 319 Facsimile: (201) 631-7459 Parsippany, New Jersey 07054-0319
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of Baltek Corporation and Subsidiaries
We have audited the accompanying consolidated balance sheets of Baltek Corporation and subsidiaries as of December 31, 1996 and 1995, and the related consolidated statements of income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1996. Our audits also included the financial statement schedule listed in the accompanying index. These financial statements and financial statement schedule are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits.
We conducted our audits 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, such consolidated financial statements present fairly, in all material respects, the financial position of Baltek Corporation and subsidiaries as of December 31, 1996 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1996 in conformity with generally accepted accounting principles. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
/s/Deloitte & Touche LLP
March 11, 1997
See notes to consolidated financial statements.
See notes to consolidated financial statements.
See notes to consolidated financial statements.
See notes to consolidated financial statements.
BALTEK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1996 - --------------------------------------------------------------------------------
1. NATURE OF OPERATIONS
Baltek Corporation is a multinational manufacturing and marketing company. The Company's lines of business are supplying core materials (principally balsa products) to various composite industries, manufacturing and selling balsa lumber and other balsa wood products, and farming and processing shrimp. The Company reported its sales in two segments in 1996: the balsa segment, including all balsa sales and other materials sold to the composite industry (80%), and the shrimp segment (20%).
The principal market for the Company's core materials and balsa products is in the United States, while the shrimp market is divided between the United States and Europe.
The balsa and shrimp products are produced in Ecuador, South America. The supply of raw materials has been without interruption for over 50 years. The balsa and shrimp identifiable assets located at various facilities in Ecuador are included in the Company's consolidated balance sheet and total approximately $22 million at December 31, 1996.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation - The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.
Cash and Cash Equivalents - Cash equivalents consist of short-term highly liquid investments with maturities of three months or less when purchased. Investments are carried at cost, which approximates market.
In accordance with Statement of Financial Accounting Standards No. 95, "Statement of Cash Flows," cash flows from Baltek's operations in foreign countries are calculated based on their reporting currencies. As a result of this, amounts related to changes in assets and liabilities reported on the consolidated statement of cash flows will not necessarily agree to changes in the corresponding balances on the consolidated balance sheets. The effect of exchange rate changes on cash balances held in foreign currencies is reported on a separate line below cash flows from financing activities.
Inventories - Inventories are valued at the lower of cost or market. Cost is determined by use of the first-in, first-out (FIFO) method.
Property - Property, plant and equipment is stated at cost. Depreciation is provided for depreciable assets over their estimated useful lives using various accepted depreciation methods. The assets under capital leases and leasehold improvements are amortized over their useful lives, or the life of the lease, whichever is shorter. The cost of major improvements to existing facilities is capitalized. The cost of repairs, maintenance and replacements which do not significantly improve or extend the life of the respective assets is charged to expense as incurred.
Income Taxes - Taxes on current income are provided by the Company and each subsidiary as prescribed by local tax laws. The Company follows the practice of comprehensive interperiod income tax allocation. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.
Timber and Timberlands - Timberlands are carried at cost. Deferred cultivation costs represent the cost of preparing, clearing and seeding the Company's balsa wood plantations. Amortization of deferred cultivation costs is based on units of production. Timber carrying costs, which include the regular maintenance and overseeing of timberlands, are expensed as incurred.
Foreign Currency Translation - The financial statements of the Company's foreign subsidiaries are remeasured into U.S. dollars, the Company's functional currency, in accordance with Statement of Financial Accounting Standards No. 52, "Foreign Currency Translation." The majority of the foreign exchange gains and losses relate to the manufacturing process in Ecuador, and such amounts are separately stated in the accompanying consolidated statements of income.
Foreign Currency Risk Management - The Company uses foreign currency forward contracts to reduce currency exchange rate risk on firm commitment purchases denominated in foreign currencies. Gains or losses resulting from these contracts are deferred and are included in the purchase price of the materials. The maximum term of these contracts is less than one year.
Concentrations of Credit Risk - Baltek's principal products, balsa lumber and related end products, as well as shrimp products, are sold to a number of markets, including boating, transportation, military, hobby, and the retail food industry. Baltek's products are sold throughout the United States, Canada, Europe, Japan and Australia to approximately 1,600 ultimate users. Credit risk related to Baltek's trade receivables is limited due to the large number of customers in differing industries and geographic areas.
Research and Development - Research and development costs are charged to expense as incurred. Research and development expenditures, including customer service activities, charged to operations were $350,333, $414,675 and $447,311 in 1996, 1995 and 1994, respectively.
Income Per Common Share - Income per common share amounts are computed based on the weighted average number of shares outstanding during the period. The weighted average number of common shares outstanding was 2,523,261 in 1996, 1995 and 1994.
Use of Estimates - In conformity with generally accepted accounting principles, the Company's financial statements include the use of estimates and assumptions which have been developed by management based on available facts and information. Actual results could differ from those estimates.
Revenue Recognition - The Company generally recognizes revenues when goods are shipped.
Reclassifications - Certain amounts in prior year financial statements have been reclassified to conform with the current year presentation.
3. INVENTORIES
Inventories of the balsa and shrimp segments are summarized as follows:
Included in the above amounts are inventories relating to the Company's shrimp operations of $1,159,914 and $1,337,154 at December 31, 1996 and 1995, respectively.
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is comprised of the following:
Shrimp properties consist principally of shrimp ponds, a hatchery and a packing plant.
Accumulated amortization related to the asset under capital lease at December 31, 1996 and 1995 was $1,207,727 and $957,851, respectively.
5. TIMBER AND TIMBERLANDS
Timber and Timberlands are comprised of the following:
6. NOTES PAYABLE
Notes payable under various agreements consist of the following:
The U.S. Bank loan represents borrowings under an unsecured revolving line of credit with a domestic bank. The maximum credit limit under the line is $4,600,000, with interest at the bank's prime rate. This line of credit, which is renewable annually, expires on May 31, 1997. The Company was in compliance with all related loan covenants at December 31, 1996.
The Ecuadorian bank loans are unsecured. At December 31, 1996, unused lines of credit available under Ecuadorian borrowing arrangements amounted to approximately $1,550,000, and under European borrowing arrangements amounted to approximately $772,000.
The credit facilities discussed above do not require compensating balances or the payment of commitment fees. The weighted average interest rate on borrowings outstanding at December 31, 1996 and 1995 was 8.5% and 14.0%, respectively. The carrying amount of the notes payable approximates their fair value based on the short-term nature and the terms of the loans.
7. LONG-TERM DEBT
Long-term debt consists of the following:
The equipment loan payable is secured by certain machinery and equipment at the Company's Northvale, New Jersey facilities. The carrying amount of the loan payable approximates its fair value due to the variable interest rate of the loan.
The aggregate maturities of long-term debt at December 31, 1996 are as follows:
1997 $ 108,922 1998 99,476 1999 83,811 2000 80,000 2001 13,333 ---------
$ 385,542 =========
8. INCOME TAXES
Income (loss) before income taxes is comprised of:
The provision (benefit) for income taxes consists of the following:
The reconciliation between the Company's effective tax rate and the statutory Federal tax rate is as follows:
In 1996, the Company included the income from the reversal of a current valuation allowance in the tax provision. In 1995, the Company utilized foreign tax credit carryforwards of $140,000, for which a full valuation allowance had been recorded in prior years. The effect of the reversal of the valuation allowance has been included in the tax provision for 1995.
As a result of various incentives provided by the Ecuadorian government, the effective foreign tax rate is lower than the U.S. Federal statutory tax rate.
Significant components of the Company's deferred tax assets and liabilities are as follows:
As of December 31, 1996 and 1995, the Company had a full valuation allowance recorded against its foreign tax loss carryforwards related to certain European locations. Management believes that it is more likely than not that these carryforwards, the majority of which are available until the year 2000, will expire unutilized.
The total current and noncurrent amounts presented above are included in other assets (current and noncurrent) in the consolidated financial statements.
The Company does not accrue Federal income taxes on the equity in the undistributed earnings of its foreign subsidiaries, which amounted to approximately $5,658,000 at December 31, 1996, because such earnings are permanently reinvested. It is not practicable to estimate the tax liability that might arise if these earnings were remitted.
9. EMPLOYEE BENEFIT PLANS
The Company has a profit-sharing plan under which an annual contribution may be paid from accumulated profits at the discretion of the Board of Directors for the benefit of eligible employees upon their retirement. Contributions to this plan by the Company amounted to approximately $180,000 and $327,000 in 1996 and 1995, respectively. There were no contributions to the plan by the Company in 1994. Additionally, the plan allows for all participants to defer between 2 percent and 10 percent of salary. Amounts deferred are paid to the trustee of the plan. The plan does not provide for matching Company contributions.
Certain employees of the Company's Ecuadorian subsidiary companies are covered by termination and retirement plans incorporated under statutory requirements of labor laws and collective bargaining agreements. Included in the accompanying consolidated balance sheets are union employee termination benefits which approximate unpaid vested benefits under such plans. The amount of benefits to be received by an employee is established by the collective bargaining agreements and is based on length of service and compensation. Provisions of approximately $64,000, $111,000 and $63,000 were charged to income during 1996, 1995 and 1994, respectively.
10. LEASES
The Company leases its office space and plant facilities in Northvale, New Jersey under a long-term capital lease agreement which expires in 2002. The lease provides that the Company pay all real estate taxes, maintenance and insurance relating to the facilities.
Rent expense under operating leases relates principally to office buildings and amounted to $122,135, $53,343 and $51,210 in 1996, 1995 and 1994, respectively.
Future minimum lease payment obligations, as of December 31, 1996, for the capital lease described above, as well as operating leases, are summarized below. The operating leases are for space at the Company's offices in England and France and warehouse space in New Jersey.
11. SEGMENT INFORMATION
The Company and its subsidiaries operate primarily in two segments, as a manufacturer and supplier of balsa wood products used principally as a core material in various industries, and in the shrimp farming business. Information about the Company's operations by segment is as follows:
Information pertaining to the Company's operations in different geographic areas is as follows:
Transfers between geographic areas are at prices which permit the recovery of manufacturing costs and a reasonable operating profit. The majority of export sales from the Company's United States operations were to unaffiliated customers in Europe.
Sales to one customer from the Balsa segment amounted to approximately 13% of total revenues in 1995 and 1994. No customer accounted for more than 10% of revenues in 1996.
12. SPECIAL CHARGE
In 1994, the Company recorded a special charge of $323,977, associated with a decision to reduce costs by making personnel changes at the Company's mills in Ecuador. This charge was comprised primarily of severance payments for 68 employees. This action was effected within 1994 and no related liability remained by year-end 1994.
******


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.
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
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.
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.

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.
ITEM 3.

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.

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.
- ------- *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.
PART II
ITEM 5.

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.

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.
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.
ITEM 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.

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.

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.

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.

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.

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.

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.
PART IV
ITEM 14.

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,
(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.
(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.
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
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
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)
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.