ITEM 1. BUSINESS
THE COMPANY
Instron Corporation ("Instron" or the "Company") designs, develops, manufactures, markets, and services materials testing systems, software, and accessories for evaluating the mechanical properties of materials, components and structures. The Company's products are used principally in research and development, and quality control applications to test the strength, elasticity, hardness and other properties of various materials including metals, plastics, textiles, composites, ceramics and rubber.
Instron offers a comprehensive range of microprocessor and computer based materials testing systems. In the worldwide market for these systems, Instron is a leading producer of static (electromechanical), dynamic (servohydraulic) and hardness testing systems.
Instron's products typically are assembled from a number of company- designed standard hardware and software modules and accessories, selected and configured for the customer's specific application. Additional hardware, software and accessories may be added to the system at a later date. The systems have the ability to interface with microcomputers and personal computers which enhance control of the testing process, data collection and analysis.
The Company has sales and service offices in 12 United States cities and 16 foreign countries. Approximately 60% of the Company's revenues are derived from sales outside the United States. Principal manufacturing facilities are located in the United States and the United Kingdom.
PRINCIPAL MARKET
The Company's principal market is comprised of industry, educational institutions and governments who need to understand the characterization and properties of materials as they perform research and development, and quality control applications.
Most major industries use some form of materials testing for research and development and/or quality control. Industrial research focuses upon the development of new materials, substitute materials, or new uses of existing materials, to reduce manufacturing or operating costs and to improve product quality and durability. Industrial quality control applications involve the testing of finished products as well as materials purchased for the manufacturing process.
Educational institutions use Instron products in basic research as well as for instruction in materials science. The Company places particular emphasis on educational institutions because scientists and engineers trained on Instron equipment may influence additional sales of the Company's products later in their careers.
Government and government agency use principally involves the testing of products to support defense and space programs, to ascertain compliance with safety and other legal requirements and to conduct research on new materials and emerging technologies.
PRINCIPAL PRODUCTS
Instron offers a comprehensive range of general purpose materials testing systems, application software, and accessories within two principal product lines; static systems and dynamic systems. Static and dynamic systems use different drive systems to push, pull or twist the material being tested. Static systems typically elongate or compress the material sample at selected speeds or rates of strain. Dynamic systems allow repeated deformation of the sample to simulate in-use conditions of the product over an extended period of time. The type of test determines which product line is appropriate to the needs of a customer.
STATIC: Static (electromechanical) systems and related accessories accounted for approximately 69%, 71%, and 68% of the Company's revenue in 1995, 1994 and 1993, respectively. These systems consist of a frame, a moving crosshead, a load cell, grips, and electronic modules to control the test and analyze the test data. Static systems typically elongate or compress the material being tested at a user selected, constant speed which ranges from fractional microns per minute to one meter per minute. These systems continuously measure the precise force being applied and the resulting deformation of the material at various time intervals. They also analyze the results of the test, and either print, graph or electronically display them.
Instron's static product offerings include hardness testing machines, the cost effective Series 4400 product line, and the high-performance Series 5500 product line. The Series 5500 systems are usually used for research and development and are equipped with software and many accessories. Quality Control applications usually require fewer accessories and less breadth of application capability. The prices of electromechanical systems generally range from $15,000 to $150,000, and prices of hardness testing machines range from $2,000 to $20,000.
DYNAMIC: Dynamic (servohydraulic) systems and related accessories accounted for approximately 31%, 29% and 32% of the Company's sales in 1995, 1994 and 1993, respectively. These systems utilize a servo-controlled hydraulic actuator, a load cell, grips, and electronic modules to control the test and analyze the test data. Many of the elements have the same function, and in some cases are the same actual elements, as those of static test machines. The major distinction between a dynamic system and a static system is the means used to apply force to the test specimen. The former uses a
servo-controlled, hydraulic actuator and the latter a screw-driven, moving crosshead. Many tests can be carried out equally well with either a static or dynamic test machine. However, if the test requires extremely rapid rates of loading, or if it is a test of endurance in which the material is subjected to rapidly fluctuating loads, then the dynamic (servohydraulic) test machine is appropriate.
Software, computer control and data analysis are features routinely added to basic dynamic systems. The computer is often used to command actuator motion to simulate real-life loading conditions. It is also used to record, analyze and display parameters of performance and endurance for test material or test components. Machines can be configured not only to elongate or compress the material being tested, but to simultaneously twist it or subject it to other forms of complex loading.
The dynamic product line includes structural testing systems which are used to test products and assemblies. They typically consist of several actuators which push and pull the product at different points, and sensors which collect data and transmit it to a central measuring device. Utilizing the Company's engineering expertise, dynamic systems are often customized to fit the need of a customer's particular test application.
Instron's dynamic product offerings vary with the force capacity of the machines, the complexity of the actuator system, the sophistication of the control electronics, and the computer system and software. The prices of servohydraulic systems generally range from $40,000 to $400,000 with very complex structures systems ranging as high as several million dollars.
SERVICE
In recent years, the Company has invested in new service offerings, including calibration, extended warranties, software support, upgrade contracts and telephone support. The service business accounted for approximately 15%, 15%, and 14% of the Company's total revenue in 1995, 1994, and 1993, respectively. The service revenue is included in the percentage amounts for static and dynamic systems set forth above.
OTHER PRODUCTS AND ACCESSORIES
The Company develops and sells Laboratory Information Management Systems (LIMS) for PC-based networks, through its U.S. subsidiary, Laboratory MicroSystems, Inc. The LIMS software manages the flow of information in a laboratory so that resources can be optimally employed in achieving the laboratory's primary goals of high quality analysis and fast turnaround.
The Company has license agreements with third parties for the exclusive sale of certain products, including software, in the material testing industry.
Accessories can be included with the initial purchase or subsequently purchased in order to expand the capability of the original machine. Typical accessories include application software, grips, fixtures, optical/video extensometers which measure precisely the deformation of material being tested without actually contacting it and robotic devices which automatically feed test specimens to the systems. The Company also manufactures and sells environmental control accessories. Other products and accessories for static and dynamic equipment purchased separately from the original sale of equipment are included in the percentage amounts for static and dynamic systems set forth above.
NEW PRODUCTS
During 1995, Instron expanded the Series 4400 and Series 5500 electromechanical product lines. These new machines have been redesigned using the latest electronics technology and sharing common parts, making them easier and less costly to build and to service. The new machines are easier to operate, with easy to understand control panels and software interfaces, and ergonomic design features that minimize operator fatigue, reduce errors and increase productivity. Servohydraulic dynamic test software was enhanced with new Fast Track and Wavemaker for Windows products. The Fast Track software includes LabView drivers that make it possible for users to write their own applications and Wavemaker allows greater flexibility for sophisticated fatigue test requirements.
RESEARCH AND DEVELOPMENT
The Company maintains research and development staffs at their U.S. and U.K. manufacturing facilities, as well as the Wolpert operation in Germany. These development staffs often work directly with industrial and government researchers and the materials science departments of universities to create leading edge solutions to materials testing applications.
Instron is a pioneer in the development and application of electronic measurement and drive systems techniques in materials testing systems. The Company has continuously designed, developed, and marketed state-of-the-art testing systems, software, and accessories, including digitally controlled static and dynamic systems, low-cost static systems for the quality control market, software, and microprocessor-based system controllers to be used in conjunction with its entire product line.
In 1995, the Company expensed $8,782,000 on research and development activities, compared with $8,062,000 in 1994, and $7,248,000 in 1993. In addition, the Company has capitalized certain software development costs of $1,315,000, $792,000, and $1,882,000 during 1995, 1994 and 1993, respectively. Had these costs been included as expenses during such periods, research and development expenses would have increased by 14% in 1995, decreased by 3% in 1994 and increased by 4% in 1993, respectively. The Company, in recent years, has focused its research and development expenditures on revitalizing the electromechanical and servohydraulic product lines, developing new hardness testing machines, developing new software and enhancements, and redesigning products to reduce manufacturing costs. These new products and enhancements do not, in the Company's opinion, present a significant risk that on-hand inventory, which supports existing models, will be made obsolete because of the interchangability of parts and the lead time available before the introduction of new products. In addition, the Company allocated funds, in 1995, for development projects that show potential for new applications and market opportunities utilizing the Company's core technological competencies. Two projects were identified as having product potential for 1996; applications in asphalt testing and a motion base system to be used in the new market of motion-based simulation games for the entertainment and training industries.
COMPETITIVE CONDITIONS
The Company competes with a number of other manufacturers, some of whom have greater financial, technical and marketing resources than the Company. The intensity of the competition varies by product line and by geographic area. Competition in the United States is greatest in the dynamic line where the Company has one major domestic competitor, MTS Systems Corporation. Competition in foreign markets is greatest in Germany and Japan, where there are major local manufacturers. The principal competitive factors are engineering excellence, the quality and technical capability of the equipment, responsiveness to customer needs, quality of service, and price performance.
BACKLOG
At December 31, 1995, the Company's backlog of orders was approximately $36,136,000 compared with $32,687,000 at December 31, 1994. The Company anticipates that essentially the entire backlog at December 31, 1995 will be shipped during 1996.
RAW MATERIALS
The Company orders most of its purchased component parts from vendors who either manufacture them or supply them as off-the-shelf items. While the Company is dependent upon a limited number of suppliers for certain components, it has not experienced significant problems in procurement or delivery of any essential materials, parts or components. Substantially all purchasing is accomplished on a competitive basis while maintaining a level of inventory sufficient to provide support of customer servicing requirements and meet scheduled delivery dates.
PATENTS AND TRADEMARKS
The Company has several patents in the United States and in foreign countries. The Company relies basically on engineering and technological capability rather than on these patents to maintain its position in the industry. The trademark "Rockwell" and "Instron" and the device mark are registered trademarks of the Company. Under current law, these trademarks may be renewed indefinitely as long as they are maintained in use.
ENVIRONMENTAL CONSIDERATIONS
Compliance with federal, state and local provisions relating to protection of the environment has not had, and is not expected to have, any material adverse effects upon the production, capital expenditures, earnings, and competitive position of the Company and its subsidiaries.
NUMBER OF EMPLOYEES
At December 31, 1995, the Company employed 1,145 people worldwide.
SEASONALITY
Historically, the Company's sales are highest in the fourth quarter of each year due to the ordering pattern of its customers, which favors fourth quarter deliveries before budget authorizations expire. This is particularly true overseas where the order mix usually consists of larger systems than domestic orders. Sales in the first quarter are usually low as it takes time to rebuild in-process inventory levels after the heavy fourth quarter delivery requirements have been satisfied. Also, third quarter sales are generally low due to vacation patterns of both Company production workers and customer technical personnel needed for acceptance testing. The seasonal factors affecting sales are usually reflected in quarterly net income.
FOREIGN OPERATIONS
Foreign operations represent a significant portion of the Company's business. The Company's branches and subsidiaries outside of the United States accounted for 60% of the Company's total revenue in 1995, 60% in 1994 and 59% in 1993. The Company believes that the business and political risk of operating in its current foreign markets is not, in the aggregate, materially greater than the risk undertaken by the Company in the United States. The Company's principal foreign assets are located in the United Kingdom.
Foreign exchange fluctuations can have a significant impact on the Company's consolidated net assets and results of operations as reported in U.S. dollars. However, the Company believes that these fluctuations generally have not had, and it does not expect them to have, a significant economic effect on the Company's business since foreign operations are generally
financed, and revenues and expenses are, for the most part, paid in local currencies, except for intercompany purchases which are closely monitored. Financial information concerning domestic and foreign operations appears in Notes 1 and 2 in the "Notes to Consolidated Financial Statements" and "Management's Discussion and Analysis of Financial Condition and Results of Operations ", included as part of this report.
ITEM 2.

ITEM 2. PROPERTIES
The Company's corporate headquarters and principal United States manufacturing facility is located on 66 acres of Company-owned land at the junction of Routes 128 and 138 in Canton, Massachusetts, approximately 15 miles from Boston. This facility provides 140,500 square feet of office and manufacturing space.
The Company's principal foreign facility provides 120,000 square feet of office and manufacturing space located on seven acres of Company-owned land in High Wycombe, England, approximately 30 miles west of London.
The Company has 32 sales offices and demonstration centers which are located throughout the United States and in 16 foreign countries. The Company believes that all properties are adequate and suitable for its present needs.
ITEM 3.

ITEM 3. LEGAL PROCEEDINGS
The registrant and its subsidiaries are not involved in any material pending legal proceedings.
ITEM 4.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the fourth quarter of the year ended December 31, 1995.
EXECUTIVE OFFICERS OF THE REGISTRANT
PART II
ITEM 5.

ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The number of holders of record of the Company's Common Stock at December 31, 1995 was 542. This number does not include shareholders for whom shares are held in a "nominee" or "street" name.
ITEM 7.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Instron reported net income of $5.0 million, or 78 cents per share, for the year ended December 31, 1995, an increase of 10% over 1994. The improvement in net income was principally due to the growth of 1995 revenues.
Total revenue of $150,571,000 in fiscal 1995 increased by 11% from total revenue of $136,192,000 in fiscal 1994. This revenue growth was attributable to increases in structural and custom material testing systems, hardness testing equipment, which included the operations of Shore Instruments acquired January 5, 1995, and higher revenues of the Company's service business. Total revenue in fiscal 1994 increased by 11% over fiscal 1993 on the strength of the Company's new electromechanical line of products, increased service business and a full year of revenue from the Wolpert operation, which was acquired in August of 1993. Total foreign revenue accounted for approximately 60% of total 1995 revenue, compared with 60% in 1994 and 59% in 1993.
Total bookings of new orders increased by 12% to $155,092,000 in fiscal 1995 due to significant growth in the Asia/Latin America market, including Japan, and increases in the Company's European operation. In 1994, total bookings increased by 11% due principally to strong North America bookings and the inclusion of the Wolpert operation.
The Company's backlog was $36,136,000 at December 31, 1995, an increase of 11% from the 1994 year-end backlog. Strong fourth quarter bookings in the Company's European and Asian markets contributed to the higher backlog. Order backlog at December 31, 1994, increased by 12% over the 1993 year-end backlog due to strong Domestic and European bookings during the latter part of 1994.
The 1995 gross profit margin decreased to 41.5% from 43.4% in 1994 and 43.6% in 1993. The decrease in gross margin was due to higher than expected costs at the LMS software division, a mix of lower margin products and competitive pricing pressures partially offset by improved service profitability. As anticipated, the Company shipped several large structural and material testing systems with lower gross margins than traditional systems business, which had the effect of reducing gross margin during 1995. In contrast, service margins improved to 29% in 1995 compared to 25% in 1994 and 19% in 1993. The Company's service business has realized efficiencies by fully integrating the Wilson and Wolpert service organizations and has leveraged the increase in service revenues into higher profit margins.
Selling and administrative expense growth was held to 4% in fiscal year 1995 and 1994. Selling and administrative expenses continued to decline as a percentage of revenue to 29.7% in 1995 compared to 31.5% in 1994 and 33.6% in 1993. In 1995, the increase in selling and administrative expenses was primarily related to the inclusion of Shore's operations and costs associated
with the implementation of new information systems. In 1994, the increase in selling and administrative expenses resulted from the inclusion of a full year of expenses of Wolpert and higher incentive compensation expenses.
Research and development expenses increased by 9% in 1995, compared to an 11% increase in 1994. During the three years ended December 31, 1995, the Company has capitalized certain software development costs (see Note 1 of Notes to Consolidated Financial Statements). Had these costs been included as period expenses, research and development expenses would have increased by 14% in 1995, decreased by 3% in 1994 and increased by 4% in 1993. As a percentage of total revenue, research and development expenditures (including capitalized software costs) represented 6.7%, 6.5% and 7.4% in 1995, 1994 and 1993, respectively. The Company, in recent years, has focused its research and development expenditures on revitalizing the electromechanical and servohydraulic product lines, developing new hardness testing machines, developing new software and enhancements, and redesigning products to reduce manufacturing costs. These new products and enhancements do not, in the Company's opinion, present a significant risk that on-hand inventory, which supports existing models, will be made obsolete because of the interchangability of parts and the lead time available before the introduction of new products. In addition, the Company allocated funds, in 1995, for development projects that show potential for new applications and market opportunities utilizing the Company's core technological competencies. Two projects were identified as having product potential for 1996; applications in asphalt testing and a motion base system to be used in the new market of motion-based simulation games for the entertainment and training industries.
Operating income increased from $8,082,000 in 1994 to $8,921,000 in 1995, representing 5.9% of total revenue in both years. Operating income was $5,034,000 or 4.1% of total revenue in 1993.
Net interest expense increased by 34% in 1995 and by 35% in 1994. In both years, the increase was due to higher interest rates and higher average borrowings. The foreign exchange gains of $186,000 in 1995 were mainly attributable to the stronger Japanese yen versus the U.S. dollar and British pound and to the strengthening of certain European currencies against the British pound. In 1993, the foreign exchange losses of $367,000 were due to the weakening of certain European currencies versus the British pound. The effect of changes in foreign currency translation rates did not have a significant impact on the components of net income for each of the three years in the period ended December 31, 1995.
Income before taxes was 5.1% of total revenue in 1995 and 1994, and 3.2% in 1993. The consolidated effective tax rate was 35.0% in 1995 compared to 35.0% in 1994 and 36.0% in 1993. A detailed reconciliation of the Company's effective tax rate and the United States statutory tax rate appears in Note 8 of Notes to the Consolidated Financial Statements.
FINANCIAL CONDITION
The Company's primary source of funds in 1995 and 1994 was net cash generated by operations. The net cash generated by operations in 1995 consisted primarily of net income, as adjusted for the noncash effect of depreciation and amortization expense, and an increase in accounts payable and accrued expenses partially reduced by an increase in accounts receivable and inventories. The operating cash flows of $6.4 million and additional bank borrowings of $2.2 million were largely used to fund capital expenditures.
Accounts receivable of $47.5 million at year-end 1995 increased 15% from $41.4 million at year-end 1994. This increase reflects the higher fourth quarter revenues in 1995 of which a significant amount of revenue was recognized in the last month of the quarter.
Inventories rose $2.5 million or 11% over 1994 to $24.3 million at the end of 1995. The inventory turnover ratio increased to 2.90 from 2.77 at the end of 1994.
The Company's principal investment activities during 1995 included capital expenditures of $4.5 million consisting mainly of machinery and equipment and building improvements; the purchase of Shore Instruments for $2.7 million and the development of software products of $1.3 million. The Company currently plans to make capital expenditures of approximately $6.0 million in fiscal 1996. In addition, the Company plans to continue to develop and enhance its software products and pursue its strategy of acquisitions.
The Company's total debt outstanding at year-end 1995 was $19.9 million compared to $17.8 million at the end of 1994. The ratio of total debt to debt plus equity, at year-end 1995 increased to 26.2% from 25.5% in 1994.
The Company maintains a multicurrency revolving credit and term loan facility that provides for borrowings of up to $25.0 million through April 1998. At December 31, 1995 and 1994, respectively, the Company had outstanding borrowings of $11.2 million and $11.0 million under this facility which were classified as long-term. The Company has additional overdraft and borrowing facilities for allowing advances of approximately $27.0 million of which $8.7 million and $6.8 million were outstanding and classified as short-term borrowings at December 31, 1995 and 1994, respectively. The Company believes its present capital resources and anticipated operating cash flows are
sufficient to meet its current and future cash requirements to finance operations, capital expenditures and acquisitions.
On March 8, 1995, the Board of Directors of Instron Corporation voted to increase the regular quarterly dividend from three cents per share to four cents per share. As a result, the total cash dividends declared were fifteen cents per share compared to twelve cents per share in 1994.
As previously announced, the Company continues to explore the opportunities for disposing of its real estate assets in Canton, Massachusetts.
In January of 1996, the Company signed a non-binding Letter of Intent with Carl Schenck AG of Darmstadt, Germany, to enter into negotiations concerning the formation of a joint venture in the area of structures testing and the acquisition by Instron of Schenck's materials testing business. No assurances can be made that an agreement will be reached.
The Company's future success is dependent upon a number of factors including business conditions within the materials testing market, the ability of the Company to maintain acceptable price levels and its ability to continue to develop, manufacture, market and service the high quality products demanded by its customers.
INSTRON CORPORATION ANNUAL REPORT ON FORM 10-K YEAR ENDED DECEMBER 31, 1995 ITEM 8

ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY FINANCIAL INFORMATION
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF INSTRON CORPORATION:
We have audited the accompanying consolidated balance sheets of Instron Corporation as of December 31, 1995 and 1994, and the related consolidated statements of income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Instron Corporation as of December 31, 1995 and 1994, and the consolidated results of its operations and cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles.
/s/ COOPERS & LYBRAND L.L.P. ---------------------------- COOPERS & LYBRAND L.L.P. Boston, Massachusetts February 22, 1996
See accompanying notes to consolidated financial statements.
See accompanying notes to consolidated financial statements.
See accompanying notes to consolidated financial statements.
See accompanying notes to consolidated financial statements.
1. SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of all domestic and foreign subsidiaries. Significant intercompany transactions and balances are eliminated. Certain reclassifications were made to prior years' amounts to conform with the 1995 presentation.
USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make certain estimates and assumptions that effect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported periods. Actual results could differ from those estimates.
FOREIGN CURRENCY TRANSLATION Assets and liabilities of the Company's principal foreign operations are translated at exchange rates prevailing at the end of the period. Income statement items are translated using average quarterly exchange rates. Translation adjustments are recorded directly in stockholders' equity and are included in income only if the underlying foreign investment is sold or liquidated.
CASH AND CASH EQUIVALENTS The Company considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents.
CONCENTRATION OF CREDIT RISK Financial instruments which potentially subject the Company to a concentration of credit risk principally consist of cash, cash equivalents and trade receivables. The Company places its temporary cash investments with major banks throughout the world, in high quality, liquid instruments. The Company sells to a broad range of customers throughout the world and performs ongoing credit evaluations to minimize the risk of loss. The Company makes use of various devices such as letters of credit to protect its interests, principally on sales to foreign customers.
INVENTORIES Inventories are valued at the lower of cost or market (net realizable value). The last-in, first-out (LIFO) method of determining cost is used for inventories in the United States and the Asian branches. The Company uses the first-in, first-out (FIFO) method for all other locations.
PROPERTY, PLANT AND EQUIPMENT Depreciation is computed principally using the straight-line method over the estimated useful lives of 10 to 25 years for land improvements, 10 to 40 years for buildings and improvements and 3 to 15 years for machinery and equipment. Maintenance and repairs are expensed as incurred. Depreciation expense was $4,719,000, $4,108,000 and $3,698,000 for the years ended December 31, 1995, 1994 and 1993, respectively.
SOFTWARE DEVELOPMENT COSTS Certain software development costs and purchased software are capitalized and then amortized over future periods. Amortization of capitalized software costs, for both internally developed and purchased software products, is computed on a product-by-product basis over the estimated economic life of the product, generally three years. Unamortized software costs included in other assets were $2,679,000, $2,580,000 and $2,880,000 at December 31, 1995, 1994 and 1993, respectively. Software development costs of $1,315,000, $792,000, and $1,882,000 were capitalized during 1995, 1994 and 1993, respectively. The amounts amortized and charged to expense in 1995, 1994 and 1993 were $1,216,000, $1,092,000, and $481,000, respectively.
REVENUE RECOGNITION Revenue from product sales are recognized at time of shipment. Revenue from services are recognized as services are performed and ratably over the contract period for service maintenance contracts.
INCOME TAXES Deferred income taxes are provided using the liability method, which estimates future tax effects of differences between financial statement carrying amounts and the tax basis of existing assets and liabilities.
Provisions are made for the U.S. income tax liability on earnings of foreign subsidiaries except for locations where the Company has designated earnings to be permanently invested. Such earnings amounted to approximately $22,006,000 at year-end 1995.
NET INCOME PER SHARE Net income per share is based on the weighted average number of common shares and common share equivalents outstanding. The number of outstanding shares and equivalents utilized in the per share computations were 6,431,882, 6,339,547 and 6,345,431 in 1995, 1994 and 1993, respectively.
2. INDUSTRY SEGMENT AND FOREIGN OPERATIONS
The Company operates in one industry segment, that being the design, production, marketing and servicing of precision systems, software and accessories, for evaluating the mechanical properties and performance of various materials, components and structures.
2. INDUSTRY SEGMENT AND FOREIGN OPERATIONS (continued)
Sales between geographic areas in 1995, 1994 and 1993, respectively, consisted primarily of $10,534,000, $10,755,000 and $10,386,000 from the United States and $11,998,000, $8,921,000 and $8,472,000 from European operations. Transfers between geographic areas are at manufacturing cost plus a markup factor.
3. INVENTORIES
Inventories valued at LIFO amounted to $9,721,000 and $8,913,000 at December 31, 1995 and 1994, respectively. The excess of current cost over stated LIFO value was $4,535,000 at December 31, 1995 and $4,339,000 at December 31, 1994. During 1994, certain inventories were reduced, resulting in the liquidation of LIFO inventory layers carried at lower costs prevailing in prior years as compared with the current cost of inventory. The effect of this inventory liquidation was to reduce cost of revenue by $184,000 in 1994.
4. PROPERTY, PLANT AND EQUIPMENT
5. BORROWING ARRANGEMENTS
The Company maintains a multicurrency revolving credit and term loan facility that provides for borrowings of up to $25,000,000 through April 1998. Borrowings outstanding as of April 1998 convert to a term loan payable in sixteen equal quarterly installments. Interest on borrowings under the agreement is based upon either base rates, LIBOR, or other short-term borrowing rates.
Commitment fees under this agreement are 3/8 of 1% per annum on the unused portion. The Company has met the various covenants in the agreement, the most restrictive of which requires a minimum level of tangible net worth. At December 31, 1995 and 1994, respectively, outstanding domestic borrowings of $9,900,000 and $9,500,000 with a weighted average interest rate of 6.13% and 6.56%, and outstanding European borrowings of $1,325,000 and $1,518,000 with a weighted average interest rate of 6.44% and 7.69%, were classified as long-term debt. Long-term debt maturing under the credit agreement in each of
5. BORROWING ARRANGEMENTS (continued)
the five years subsequent to December 31, 1995, assuming outstanding borrowings at December 31, 1995 are unchanged at April 1998, is $2,104,688 in 1998 and $2,806,250 in 1999 and 2000.
The Company's subsidiaries have other overdraft and borrowing facilities allowing advances up to approximately $27,000,000. At December 31, 1995, the outstanding portion of these facilities was $8,650,000, due currently. Bank guarantees outstanding at December 31, 1995, for which the Company is contingently liable, amounted to $5,159,000 and relate principally to performance contracts.
6. OPERATING LEASE COMMITMENTS
7. EMPLOYEE PENSION AND RETIREMENT PLANS
The Company maintains qualified noncontributory defined benefit pension plans covering United States employees and employees of Instron's United Kingdom subsidiary. The benefits are based on years of service and final average compensation at the date of retirement. The Company's general policy is to fund the pension plans to the extent such contributions are deductible under standards established by the Internal Revenue Service in the U.S. and the Inland Revenue in the U.K. Plan assets in the U.S. consist of mutual funds which invest primarily in common stocks, corporate bonds, U.S. government notes and temporary cash investments. In the U.K., plan assets are invested in funds whose assets consist primarily of common stocks, bonds and other securities. Employees of the Japan subsidiary receive lump sum payments as a multiple of annual salary at retirement or termination, based on years of service. These Japanese benefits are unfunded.
7. EMPLOYEE PENSION AND RETIREMENT PLANS (continued)
The expense of all pension plans for 1995, 1994 and 1993 was $2,276,000, $1,743,000, and $2,063,000, respectively. The Company also sponsors a Savings and Security Plan for all U.S. employees. The plan (in accordance with section 401(k) of the Internal Revenue Code) offers participating employees a program of regular savings and investment, funded by their own contributions and those of the Company. The amount charged to operating expense for this plan was $535,000, $498,000 and $447,000 in 1995, 1994 and 1993, respectively.
8. INCOME TAXES
A valuation reserve has been established where, based upon available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. The net change in the valuation allowance in 1995 was a decrease of $110,000 relative to foreign tax benefits now realized. The valuation allowance as of December 31, 1995 related primarily to foreign tax benefits.
8. INCOME TAXES (continued)
At December 31, 1995 there were no foreign tax credit carryforwards for financial reporting purposes or for tax reporting purposes.
9. STOCK OPTION PLANS
At December 31, 1995, 510,781 shares were exercisable at $7.88 to $13.13 per share and 105,490 shares were available for future options.
In 1995, the Financial Accounting Standards Board issued the Statement of Financial Accounting Standards ("SFAS") 123, Accounting for Stock Based Compensation. SFAS 123 provides the alternative of either accounting for stock based compensation at fair market value determined by an option pricing or other appropriate model ("market value method") or retaining the existing method of accounting, but disclosing the pro-forma effect of the market value method in a footnote ("disclosure alternative"). The company plans to adopt the disclosure alternative which is effective for fiscal 1996.
ITEM 9.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT - ------- -------------------------------------------------
The response to this item is contained in part under the caption, "Executive Officers of the Registrant", in Part I hereof, and the remainder is contained under the captions, "Information Regarding the Board of Directors' Nominees and Directors" and "Compliance with Section 16(a) of the Securities Exchange Act of 1934" in the Registrant's definitive proxy statement relating to its 1996 Annual Meeting of Stockholders and is incorporated herein by reference.
ITEM 11.

ITEM 11. EXECUTIVE COMPENSATION - ------- ----------------------
The information contained under the caption "Election of a Class of Directors" in the Registrant's definitive proxy statement relating to its 1996 Annual Meeting of Stockholders is incorporated herein by reference.
ITEM 12.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT - ------- --------------------------------------------------------------
The information contained under the caption "Information Regarding the Board of Directors' Nominees and Directors" in the Registrant's definitive proxy statement relating to its 1996 Annual Meeting of Stockholders is incorporated herein by reference.
ITEM 13.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - ------- ----------------------------------------------
The information contained under the caption "Information Regarding the Board of Directors' Nominees and Directors" in the Registrant's definitive proxy statement relating to its 1996 Annual Meeting of Stockholders is incorporated herein by reference.
PART IV
ITEM 14.

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K - ------- --------------------------------------------------------------
(a)1. Financial Statements
The following consolidated financial statements are included in Item 8:
Consolidated statements of income for the years ended December 31, 1995, 1994 and 1993
Consolidated balance sheet at December 31, 1995 and 1994
Consolidated statements of cash flows for the years ended December 31, 1995, 1994 and 1993
Consolidated statements of stockholders' equity for the years ended December 31, 1995, 1994 and 1993
Notes to consolidated financial statements
All other schedules have been omitted since the required information is not present or not present in amounts sufficient to require submission of the schedule, or because the information required is included in the consolidated financial statements, including the accompanying notes.
(b) Report on Form 8-K
None.
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.
INSTRON CORPORATION (Registrant)
By /s/ James M. McConnell By /s/ Linton A. Moulding ----------------------------------- ------------------------------- James M. McConnell Linton A. Moulding President and Chief Executive Officer Chief Financial Officer (Principal Executive Officer) (Principal Financial and Accounting Officer)
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF INSTRON CORPORATION
Our report on the consolidated financial statements of Instron Corporation as of and for each of the three years in the period ended December 31, 1995 has been included in this Annual Report on Form 10-K. In connection with our audit of such financial statements, we have also audited the related financial statement schedule listed in Item 14(a) of this Form 10-K.
In our opinion, this 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.
/s/ COOPERS & LYBRAND L.L.P --------------------------- COOPERS & LYBRAND L.L.P. Boston, Massachusetts February 22, 1996
SCHEDULE II


ITEM 1. BUSINESS.
H. J. Heinz Company was incorporated in Pennsylvania on July 27, 1900. In 1905, it succeeded to the business of a partnership operating under the same name which had developed from a food business founded in 1869 at Sharpsburg, Pennsylvania by Henry J. Heinz. H. J. Heinz Company and its consolidated subsidiaries (collectively, the "Company" or the "Registrant" unless the context indicates otherwise) manufacture and market an extensive line of processed food products throughout the world. The Company's products include ketchup, tuna and other seafood products, baby food, frozen potato products, pet food, lower-calorie products (frozen entrees, frozen desserts, frozen breakfasts, dairy and other products), soup (canned and frozen), sauces/pastes, condiments and pickles, beans, coated products, pasta, bakery products, chicken, frozen pizza and pizza components, full calorie frozen dinners and entrees, vegetables (frozen and canned), ice cream and ice cream novelties, edible oils, vinegar, margarine/shortening, juices and other processed food products. The Company operates principally in one segment of business--processed food products--which represents more than 90% of consolidated sales. The Company also operates and franchises weight control classes and operates other related programs and activities. The Company intends to continue to engage principally in the business of manufacturing and marketing processed food products and the ingredients for food products.
The Company's products are manufactured and packaged to provide safe, stable, wholesome foods which are used directly by consumers and foodservice and institutional customers. Many products are prepared from recipes developed in the Company's research laboratories and experimental kitchens. Ingredients are carefully selected, washed, trimmed, inspected and passed on to modern factory kitchens where they are processed, after which the finished product is filled automatically into containers of glass, metal, plastic, paper or fiberboard which are then closed, processed, labeled and cased for market. Finished products are processed by sterilization, homogenization, chilling, freezing, pickling, drying, freeze drying, baking or extruding. Certain finished products and seasonal raw materials are aseptically packed into sterile containers after in-line sterilization.
The Company has three classes of similar products, each of which has accounted for 10% or more of consolidated sales in one or more of the prior three fiscal years listed below. The following table shows sales, as a percentage of consolidated sales, for each of these classes of similar products for each of the last three fiscal years.
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 and "Rosetto" and "Domani" for frozen pasta products, all of which are marketed in the United States. "9 Lives" is used for cat foods, "Kibbles N' Bits", "Ken-L-Ration" and "Reward" for dog food, "Jerky Treats", "Meaty Bones", "Snausages" and "Pup- Peroni" for dog snacks, all of which are marketed in the United States and Canada. "Amore" and "Kozy Kitten" is used for cat foods, "Cycle", "Gravy Train", "Skippy Premium", "Recipe" and "Vets" for dog food, "Pounce" for cat treats, all of which are marketed in the United States. "Chef Francisco" is used for frozen soups and "Omstead" is used for frozen vegetables, frozen coated products and frozen fish products, both of which are marketed in the United States and Canada. "Pablum" is used for baby food products marketed in Canada. "Plasmon", "Nipiol" and "Dieterba" are used for baby food products, "Misura" for dietetic products for adults, "Ortobuono" for pickled vegetables and fruit in syrup, "Mare D'Oro" for seafood and "Mr. Foody" for table and kitchen sauces "Bi-Aglut", "Aproten", "Polial" and "Dialibra" for nutraceutical products, all of which are mainly marketed in Italy. "Petit Navire" is used for tuna and mackerel products, "Marie Elisabeth" for sardines and tuna and "Orlando" and "Guloso" for tomato products, all of which are marketed in various European countries. "Wattie's" is used for various grocery products and frozen foods, "Tip Top" for ice cream and frozen desserts and "Tegel" for poultry products, all of which are marketed in New Zealand, Australia and the Asia/Pacific region. "Farley's" and "Farex" are used for baby food products marketed in Europe, India, Australia and New Zealand. "Glucon D" and "Complan" are used for nutritional drink mixes marketed in India and in the case of "Complan" also Latin America. "Weight Watchers" is used in numerous countries in conjunction with owned and franchised weight control classes, programs, related activities and certain food products. "Budget Gourmet" is used on frozen entrees and dinners. The Company also markets certain products under other trademarks and brand names and under private labels.
Although crops constituting some of the Company's raw food ingredients are harvested on a seasonal basis, most of the Company's products are produced throughout the year. Seasonal factors inherent in the business have always influenced the quarterly sales and net income of the Company. Consequently, comparisons between quarters have always been more meaningful when made between the same quarters of different years.
The products of the Company are sold under highly competitive conditions, with many large and small competitors. The Company regards its principal competition to be other manufacturers of processed foods, including branded, retail products, foodservice products and private label products, that compete with the Company for consumer preference, distribution, shelf space and merchandising support. Product quality and consumer value are important areas of competition. The Company's Weight Watchers International, Inc. subsidiary also competes with a wide variety of weight control programs.
The Company's products are sold through its own sales force and through independent brokers and agents to chain, wholesale, cooperative and independent grocery accounts, to pharmacies, to foodservice distributors and to institutions, including hotels, restaurants and certain government agencies. The Company is not dependent on any single customer or a few customers for a material part of its sales.
Compliance with the provisions of national, state and local environmental laws and regulations has not had a material effect upon the capital expenditures, earnings or competitive position of the Company. The Company's estimated capital expenditures for environmental control facilities for the remainder of fiscal year
1996 and the succeeding fiscal year are not material and will not materially affect either the earnings or competitive position of the Company.
The Company's factories are subject to inspections by various governmental agencies, and its products must comply with the applicable laws, including food and drug laws, of the jurisdictions in which they are manufactured and marketed.
The Company employed, on a full-time basis as of May 3, 1995, approximately 42,200 persons around the world.
Financial segment information by major geographic area for the most recent three fiscal years is set forth on page 36 of the Company's Annual Report to Shareholders for the fiscal year ended May 3, 1995. Such information is incorporated herein by reference.
Income from international operations is subject to fluctuation in currency values, export and import restrictions, foreign ownership restrictions, economic controls and other factors. From time to time exchange restrictions imposed by various countries have restricted the transfer of funds between countries and between the Company and its subsidiaries. To date, such exchange restrictions have not had a material adverse effect on the Company's international operations.
ITEM 2.

ITEM 2. PROPERTIES.
The Company has 45 food processing plants in the United States and its possessions, of which 39 are owned and six are leased, as well as 50 food processing plants in foreign countries, of which 47 are owned and three are leased, including ten in New Zealand, six in Canada, four in the United Kingdom, four in Italy, three in Australia, three in Spain, two in Greece, two in Portugal, two in Zimbabwe, one in Botswana, one in France, one in Ireland, one in The Netherlands, one in Venezuela, one in Japan, one in the People's Republic of China, one in Ghana, one in the Republic of Korea, one in Thailand, one in Ecuador, one in India, one in Hungary and one in Russia. The Company also leases one can-making factory in the United States. The Company and certain of its subsidiaries also own or lease office space, warehouses and research and other facilities. The Company's food processing plants and principal properties are in good condition and are satisfactory for the purposes for which they are being utilized.
ITEM 3.

ITEM 3. LEGAL PROCEEDINGS.
With respect to the antitrust litigation against the Company and its two principal competitors in the United States baby food industry which was previously reported in the Company's Annual Report on Form 10-K for the fiscal year ended April 27, 1994, see Note 14 to the Consolidated Financial Statements on page 55 of the Company's Annual Report to Shareholders for the fiscal year ended May 3, 1995, which is incorporated herein by reference. The Company continues to believe that all of the suits and claims are without merit and is defending itself vigorously against them.
As previously reported in the Company's Form 10-Q for the three month period ended July 27, 1994, Mayaguez Water Treatment Company, Inc. ("MWTC"), an indirectly 70% owned subsidiary of the Company, had been advised that the Puerto Rico Environmental Quality Board ("EQB") was contemplating initiating proceedings against MWTC which could have resulted in fines being assessed in excess of $100,000 as a consequence of violations of an administrative order relating to MWTC's NPDES permit at its Mayaguez, Puerto Rico facility. The EQB has not initiated proceedings to date. A Puerto Rican environmental group, however, filed a lawsuit in the U.S. District Court for the District of Puerto Rico (Mayaguezanos por la Salud y el Ambiente, Inc. v. Mayaguez Water Treatment Company, Inc.; Star-Kist Caribe, Inc.; Bumble Bee International Inc.) in November, 1994 against MWTC and its shareholders, Star-Kist Caribe, a wholly-owned subsidiary of the Company, and Bumble Bee International. The complaint alleges that MWTC failed to comply with its NPDES permit and failed to submit the compliance plan requested by the U.S. Environmental Protection Agency in an administrative order against MWTC and that the shareholders of MWTC are jointly liable with MWTC for such violations. Plaintiffs are requesting an injunction ordering MWTC to cease violating its NPDES permit; civil penalties for MWTC's violations which may exceed $100,000; and plaintiff's costs. Discovery in this matter has commenced. Although the EQB and the U.S. Environmental Protection Agency each have the right to join the lawsuit which could result in a fine being assessed in excess of $100,000, to date, neither agency has joined.
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 13, 1994.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following is a list of the names and ages of all of the executive officers of the Company indicating all positions and offices with the Company held by each such person and each such person's principal occupations or employment during the past five years. All the executive officers have been elected to serve until the next annual election of officers or until their successors are elected, or until their earlier resignation or removal. The annual election of officers is scheduled to occur on September 12, 1995.
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 on page 35 under the caption "Stock Market Information" and on page 55 in Note 13, "Quarterly Results (Unaudited)," of the Company's Annual Report to Shareholders for the fiscal year ended May 3, 1995. Such information is incorporated herein by reference.
ITEM 6.

ITEM 6. SELECTED FINANCIAL DATA.
The following table presents selected consolidated financial data for the Company and its subsidiaries for each of the five fiscal years 1991 through 1995. All amounts are in thousands except per share data.
During 1995, the Company invested approximately $1.2 billion in acquisitions, the most significant of which was the North American pet food businesses of The Quaker Oats Company. See Notes 2 and 6 to the Consolidated Financial Statements, beginning on pages 43 and 47, respectively, of the Company's Annual Report to Shareholders for the fiscal year ended May 3, 1995.
Results recorded in 1994 include gains from the sale of the confectionery business of Heinz Italy and the sale of Heinz U.S.A.'s Near East specialty rice business. See Note 3 to the Consolidated Financial Statements on page 44 of the Company's Annual Report to Shareholders for the fiscal year ended May 3, 1995.
During 1993, the Company adopted the provisions of FAS No. 106 and elected immediate recognition of the cumulative effect. See Note 11 to the Consolidated Financial Statements on pages 52 and 53 of the Company's Annual Report to Shareholders for the fiscal year ended May 3, 1995.
Net income and net income per share for 1993 includes restructuring charges. See Note 4 to the Consolidated Financial Statements on page 45 of the Company's Annual Report to Shareholders for the fiscal year ended May 3, 1995.
In 1992, restructuring charges of $88.3 million on a pretax basis ($0.20 per share) were reflected in operating income to provide for the consolidation of functions, staff reductions, organizational reform and plant modernizations and closures.
Results recorded in 1992 also include a pretax gain of $221.5 million on the sale of The Hubinger Company of Keokuk, Iowa to Roquette Freres, a major worldwide producer of corn starches. Hubinger is a producer of corn derivatives, including corn syrup, starch and ethanol.
ITEM 7.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
This information is set forth in the Management's Discussion and Analysis section on pages 28 through 36 of the Company's Annual Report to Shareholders for the fiscal year ended May 3, 1995. Such information is incorporated herein by reference.
ITEM 8.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Consolidated Balance Sheets of the Company and its subsidiaries as of May 3, 1995 and April 27, 1994 and the related Consolidated Statements of Income, Retained Earnings and Cash Flows for the fiscal years ended May 3, 1995, April 27, 1994 and April 28, 1993, together with the related Notes to Consolidated Financial Statements, included in the Company's Annual Report to Shareholders for the fiscal year ended May 3, 1995, are incorporated herein by reference.
ITEM 9.

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--Director and Officer Securities Reports" in the Company's definitive Proxy Statement in connection with the Annual Meeting of Shareholders to be held September 12, 1995. Such information is incorporated herein by reference. Information relating to the executive officers of the Company is set forth under the caption "Executive Officers of the Registrant" in Part I above.
ITEM 11.

ITEM 11. EXECUTIVE COMPENSATION.
Information relating to executive compensation is set forth under the caption "Executive Compensation" in the Company's definitive Proxy Statement in connection with its Annual Meeting of Shareholders to be held September 12, 1995. Such information is incorporated herein by reference.
ITEM 12.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information relating to the ownership of equity securities of the Company by certain beneficial owners and management is set forth under the captions "Security Ownership of Certain Beneficial Owners" and "Security Ownership of Management" in the Company's definitive Proxy Statement in connection with its Annual Meeting of Shareholders to be held September 12, 1995. Such information is incorporated herein by reference.
ITEM 13.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information relating to certain relationships with a beneficial shareholder and certain related transactions is set forth under the caption "Certain Business Relationships" and "Additional Information--Transactions with Beneficial Shareholders" in the Company's definitive Proxy Statement in connection with its Annual Meeting of Shareholders to be held September 12, 1995. Such information is incorporated herein by reference.
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 3, 1995 are incorporated herein by reference:
Consolidated Balance Sheets as of May 3, 1995 and April 27, 1994 Consolidated Statements of Income for the fiscal years ended May 3, 1995, April 27, 1994 and April 28, 1993 Consolidated Statements of Retained Earnings for the fiscal years ended May 3, 1995, April 27, 1994 and April 28, 1993 Consolidated Statements of Cash Flows for the fiscal years ended May 3, 1995, April 27, 1994 and April 28, 1993 Notes to Consolidated Financial Statements Independent Accountants' Report of Coopers & Lybrand L.L.P. dated June 19, 1995, on the Company's consolidated financial statements for the fiscal years ended May 3, 1995, April 27, 1994 and April 28,
(2) The following report and schedule is filed herewith as a part hereof:
Independent Accountants' Report of Coopers & Lybrand L.L.P. dated June 19, 1995, on the Company's consolidated financial statement schedule filed as a part hereof for the fiscal years ended May 3, 1995, April 27, 1994 and April 28, 1993.
Schedule II (Valuation and Qualifying Accounts and Reserves) for the three fiscal years ended May 3, 1995, April 27, 1994 and April 28, 1993.
All other schedules are omitted because they are not applicable or the required information is included herein or is shown in the consolidated financial statements or notes thereto incorporated herein by reference.
(3) Exhibits required to be filed by Item 601 of Regulation S-K are listed below and are filed as a part hereof. Documents not designated as being incorporated herein by reference are filed herewith. The paragraph numbers correspond to the exhibit numbers designated in Item 601 of Regulation S-K.
3(i) The Company's Articles of Amendment dated July 13, 1994, amending and restating the Company's amended and restated Articles of Incorporation in their entirety are incorporated herein by reference to Exhibit 3(i) to the Company's Annual Report on Form 10-K for the fiscal year ended April 27, 1994.
3(ii) The Company's By-Laws, as amended effective October 12, 1994.
4. Except as set forth below, there are no instruments with respect to long-term debt of the Company that involve indebtedness or securities authorized thereunder exceeding 10 percent of the total assets of the Company and its subsidiaries on a consolidated basis. The Company agrees to file a copy of any instrument or agreement defining the rights of holders of long-term debt of the Company upon request of the Securities and Exchange Commission.
(a) Form of Indenture between the Company and The First National Bank of Chicago dated as of July 15, 1992, is incorporated herein by reference to Exhibits 4(a) and 4(c) to the Company's Registration Statement on Form S-3 (Reg. No. 33-46680) and the supplements to such Indenture are incorporated herein by reference to the Company's Form 8-Ks dated September 21, 1992, October 29, 1992 and January 27, 1993 relating to the Company's $250,000,000 5 1/2% Notes due 1997, $300,000,000 6 3/4% Notes due 1999 and $200,000,000 6 7/8% Notes due 2003, respectively.
10(a) Permit No. 408 (lease) granted by the City of Los Angeles to Star- Kist Foods, Inc. dated September 6, 1979 for premises located at Terminal Island, California is incorporated herein by reference to Exhibit 10(e) to the Company's Annual Report on Form 10-K for the fiscal year ended April 29, 1981.
(b) Lease of Land in American Samoa, dated as of September 17, 1983, by and between the American Samoa Government and Star-Kist Samoa, Inc. is incorporated herein by reference to Exhibit 10(m) to the Company's Annual Report on Form 10-K for the fiscal year ended May 2, 1984.
(c) Management contracts and compensatory plans:
(i) 1986 Deferred Compensation Program for H. J. Heinz Company and affiliated companies is incorporated herein by reference to Exhibit 10(p) to the Company's Annual Report on Form 10-K for the fiscal year ended April 30, 1986
(ii) H. J. Heinz Company's 1982 Stock Option Plan, as amended, is incorporated herein by reference to Exhibit 10(m) to the Company's Annual Report on Form 10-K for the fiscal year ended May 2, 1990
(iii) H. J. Heinz Company's 1984 Stock Option Plan, as amended, is incorporated herein by reference to Exhibit 10(n) to the Company's Annual Report on Form 10-K for the fiscal year ended May 2, 1990
(iv) H. J. Heinz Company's 1987 Stock Option Plan, as amended, is incorporated herein by reference to Exhibit 10(o) to the Company's Annual Report on Form 10-K for the fiscal year ended May 2, 1990
(v) H. J. Heinz Company's 1990 Stock Option Plan is incorporated herein by reference to Appendix A to the Company's Definitive Proxy Statement dated August 3, 1990
(vi) H. J. Heinz Company's 1994 Stock Option Plan is incorporated herein by reference to Appendix A to the Company's Proxy Statement dated August 5, 1994
(vii) H. J. Heinz Company Supplemental Executive Retirement Plan, as amended, is incorporated herein by reference to Exhibit 10(c)(ix) to the Company's Annual Report on Form 10-K for the fiscal year ended April 28, 1993
(viii) H. J. Heinz Company Executive Deferred Compensation Plan is incorporated herein by reference to Exhibit 10(c)(x) to the Company's Annual Report on Form 10-K for the fiscal year ended April 27, 1994
(ix) H. J. Heinz Company Incentive Compensation Plan is incorporated herein by reference to Appendix B to the Company's Proxy Statement dated August 5, 1994
(d) Agreement for the Registration of Stock among H. J. Heinz Company and Howard Heinz Endowment, Vira I. Heinz Endowment, Heinz Family Foundation, H. John Heinz III Revocable Trust No. 1 and H. John Heinz III Descendants' Trust (No. 1) dated June 22, 1995 is incorporated herein by reference to Exhibit 10 to the Company's Form 8-K dated July 7, 1995.
11. Computation of net income per share.
13. Pages 28 through 56 of the H. J. Heinz Company Annual Report to Shareholders for the fiscal year ended May 3, 1995, portions of which are incorporated herein by reference. Those portions of the Annual Report to Shareholders that are not incorporated herein by reference shall not be deemed to be filed as a part of this Report.
21. Subsidiaries of the Registrant
23. The following Exhibit is filed by incorporation by reference to Item 14(a)(2) of this Report:
(a) Consent of Coopers & Lybrand L.L.P.
24. Powers-of-attorney of the Company's directors.
27. Financial Data Schedule
Copies of the exhibits listed above will be furnished upon request to holders or beneficial holders of any class of the Company's stock, subject to payment in advance of the cost of reproducing the exhibits requested.
(b) A report on Form 8-K (as amended by Form 8-K/A filed May 30, 1995) was filed with the Securities and Exchange Commission on March 29, 1995 reporting the completion by the Company of the acquisition of all of the North American pet food businesses of the Quaker Oats Company. A report on Form 8-K was filed with the Securities and Exchange Commission on July 10, 1995 reporting that on June 23, 1995, the Howard Heinz Endowment, the Vira I. Heinz Endowment, the Heinz Family Foundation and certain Heinz family trusts announced their intention to diversify their investment portfolios by selling a portion of their common stock holdings in H. J. Heinz Company through an underwritten secondary offering for up to an aggregate of approximately 13.5 million shares. The offering will be made by means of a prospectus only and is expected to occur in August 1995. H. J. Heinz Company has agreed to file a registration statement with the Securities and Exchange Commission to facilitate the offering.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized, on July 31, 1995.
H. J. HEINZ COMPANY (Registrant)
/s/ David R. Williams By...................................... DAVID R. WILLIAMS Senior Vice President-Finance and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated, on July 31, 1995.
Signature Capacity --------- --------
/s/ Anthony J. F. O'Reilly Chairman of the Board, ............................. President and Chief ANTHONY J. F. O'REILLY Executive Officer (Principal Executive Officer)
/s/ David R. Williams Senior Vice President-Finance and Chief ............................. Financial Officer (Principal Financial DAVID R. WILLIAMS Officer)
/s/ Tracy E. Quinn Corporate Controller ............................. (Principal Accounting TRACY E. QUINN Officer)
Anthony J. F. O'Reilly Director Joseph J. Bogdanovich Director Nicholas F. Brady Director Richard M. Cyert Director Thomas S. Foley Director Edith E. Holiday Director Samuel C. Johnson Director William R. Johnson Director Donald R. Keough Director Albert Lippert Director /s/ Lawrence J. McCabe Lawrence J. McCabe Director By......................................... Luigi Ribolla Director LAWRENCE J. MCCABE Herman J. Schmidt Director Director and Attorney-in-Fact David W. Sculley Director Eleanor B. Sheldon Director William P. Snyder III Director William C. Springer Director S. Donald Wiley Director David R. Williams Director
INDEPENDENT ACCOUNTANTS' REPORT
The Shareholders H. J. Heinz Company:
Our report on the consolidated financial statements of H. J. Heinz Company and Subsidiaries has been incorporated by reference in this Annual Report on Form 10-K from the Company's Annual Report to Shareholders for the fiscal year ended May 3, 1995 and appears on page 56 therein. In connection with our audits of such financial statements, we have also audited the related financial statement schedule listed in Item 14(a) of this Annual Report on Form 10-K.
In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein.
Coopers & Lybrand L.L.P.
Pittsburgh, PA June 19, 1995 ---------------
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statements of H. J. Heinz Company on Form S-8 (Registration Nos. 2-51719, 2-45120, 2- 79306, 33-00390, 33-19639, 33-32563, 33-42015 and 33-55777) of our reports dated June 19, 1995, on our audits of the consolidated financial statements and financial statement schedules of H. J. Heinz Company and Subsidiaries as of May 3, 1995 and April 27, 1994 and for the fiscal years ended May 3, 1995, April 27, 1994 and April 28, 1993, which reports are included or incorporated by reference in this Annual Report on Form 10-K.
Coopers & Lybrand L.L.P.
Pittsburgh, PA July 31, 1995
SCHEDULE II
H. J. HEINZ COMPANY AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES FISCAL YEARS ENDED MAY 3, 1995, APRIL 27, 1994 AND APRIL 28, 1993 (THOUSANDS OF DOLLARS)
Notes: (1) Principally reserves on assets sold, written-off or reclassified.
(2) Represents amounts reclassified as a result of consolidation of certain fishing vessel operations.
(3) The net change in the valuation allowance for deferred tax assets was an increase of $20.6 million. The increase is primarily due to increases in the valuation allowance related to additional deferred tax assets for foreign tax credit carryforwards ($25.3 million) and loss carryforwards ($2.9 million). This increase was partially offset by the recognition of the realizability of certain other deferred tax assets in future years ($3.1 million) and the utilization of loss carryforwards ($4.5 million). See Note 5 to the Consolidated Financial Statements on pages 45 and 46 of the Company's Annual Report to Shareholders for the fiscal year ended May 3, 1995.
(4) The net change in the valuation allowance for deferred tax assets was a decrease of $56.2 million. The decrease was primarily due to the utilization of loss carryforwards ($2.8 million) and recognition of the realizability of certain other deferred tax assets in future years ($57.3 million). An increase in the valuation allowance related to the deferred tax asset for loss carryforwards ($4.7 million) partially offset the decrease. See Note 5 to the Consolidated Financial Statements on pages 45 and 46 of the Company's Annual Report to Shareholders for the fiscal year ended May 3, 1995.
(5) The net change in the valuation allowance for deferred tax assets was a decrease of $54.9 million. The decrease was primarily due to the utilization of loss carryforwards ($5.3 million), amortization of asset revaluations ($10.7 million) and recognition of the realizability of certain other deferred tax assets in future years ($41.8 million). An increase in the valuation allowance related to the deferred tax asset for loss carryforwards ($5.0 million) partially offset the decrease. See Note 5 to the Consolidated Financial Statements on pages 45 and 46 of the Company's Annual Report to Shareholders for the fiscal year ended May 3, 1995.
EXHIBIT INDEX
Exhibits required to be filed by Item 601 of Regulation S-K are listed below and are filed as a part hereof. Documents not designated as being incorporated herein by reference are filed herewith. The paragraph numbers correspond to the exhibit numbers designated in Item 601 of Regulation S-K.
EXHIBIT
3(i) The Company's Articles of Amendment dated July 13, 1994, amending and restating the Company's amended and restated Articles of Incorporation in their entirety are incorporated herein by reference to Exhibit 3(i) to the Company's Annual Report on Form 10-K for the fiscal year ended April 27, 1994.
3(ii) The Company's By-Laws, as amended effective October 12, 1994.
4. Except as set forth below, there are no instruments with respect to long-term debt of the Company that involve indebtedness or securities authorized thereunder exceeding 10 percent of the total assets of the Company and its subsidiaries on a consolidated basis. The Company agrees to file a copy of any instrument or agreement defining the rights of holders of long-term debt of the Company upon request of the Securities and Exchange Commission.
(a) Form of Indenture between the Company and The First National Bank of Chicago dated as of July 15, 1992, is incorporated herein by reference to Exhibits 4(a) and 4(c) to the Company's Registration Statement on Form S-3 (Reg. No. 33-46680) and the supplements to such Indenture are incorporated herein by reference to the Company's Form 8-Ks dated September 21, 1992, October 29, 1992 and January 27, 1993 relating to the Company's $250,000,000 5 1/2% Notes due 1997, $300,000,000 6 3/4% Notes due 1999 and $200,000,000 6 7/8% Notes due 2003, respectively.
10(a) Permit No. 408 (lease) granted by the City of Los Angeles to Star-Kist Foods, Inc. dated September 6, 1979 for premises located at Terminal Island, California is incorporated herein by reference to Exhibit 10(e) to the Company's Annual Report on Form 10-K for the fiscal year ended April 29, 1981.
(b) Lease of Land in American Samoa, dated as of September 17, 1983, by and between the American Samoa Government and Star-Kist Samoa, Inc. is incorporated herein by reference to Exhibit 10(m) to the Company's Annual Report on Form 10-K for the fiscal year ended May 2, 1984.
(c) Management contracts and compensatory plans:
(i) 1986 Deferred Compensation Program for H. J. Heinz Company and affiliated companies is incorporated herein by reference to Exhibit 10(p) to the Company's Annual Report on Form 10-K for the fiscal year ended April 30, 1986
(ii) H. J. Heinz Company's 1982 Stock Option Plan, as amended, is incorporated herein by reference to Exhibit 10(m) to the Company's Annual Report on Form 10-K for the fiscal year ended May 2, 1990
(iii) H. J. Heinz Company's 1984 Stock Option Plan, as amended, is incorporated herein by reference to Exhibit 10(n) to the Company's Annual Report on Form 10-K for the fiscal year ended May 2, 1990
(iv) H. J. Heinz Company's 1987 Stock Option Plan, as amended, is incorporated herein by reference to Exhibit 10(o) to the Company's Annual Report on Form 10-K for the fiscal year ended May 2, 1990
(v) H. J. Heinz Company's 1990 Stock Option Plan is incorporated herein by reference to Appendix A to the Company's Definitive Proxy Statement dated August 3, 1990
(vi) H. J. Heinz Company's 1994 Stock Option Plan is incorporated herein by reference to Appendix A to the Company's Proxy Statement dated August 5, 1994
(vii) H. J. Heinz Company Supplemental Executive Retirement Plan, as amended, is incorporated herein by reference to Exhibit 10(c)(ix) to the Company's Annual Report on Form 10-K for the fiscal year ended April 28, 1993
EXHIBIT
(viii) H. J. Heinz Company Executive Deferred Compensation Plan is incorporated herein by reference to Exhibit 10(c)(x) to the Company's Annual Report on Form 10-K for the fiscal year ended April 27, 1994
(ix) H. J. Heinz Company Incentive Compensation Plan is incorporated herein by reference to Appendix B to the Company's Proxy Statement dated August 5, 1994
(d) Agreement for the Registration of Stock among H. J. Heinz Company and Howard Heinz Endowment, Vira I. Heinz Endowment, Heinz Family Foundation, H. John Heinz III Revocable Trust No. 1 and H. John Heinz III Descendants' Trust (No. 1) dated June 22, 1995 is incorporated herein by reference to Exhibit 10 to the Company's Form 8-K dated July 7, 1995.
11. Computation of net income per share.
13. Pages 28 through 56 of the H. J. Heinz Company Annual Report to Shareholders for the fiscal year ended May 3, 1995, portions of which are incorporated herein by reference. Those portions of the Annual Report to Shareholders that are not incorporated herein by reference shall not be deemed to be filed as a part of this Report.
21. Subsidiaries of the Registrant
23. The following Exhibit is filed by incorporation by reference to Item 14(a)(2) of this Report:
(a) Consent of Coopers & Lybrand L.L.P.
24. Powers-of-attorney of the Company's directors.
27. Financial Data Schedule