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H. J. Heinz Company and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
recorded in other non-current liabilities, other accrued liabilities and accumulated depreciation. No
significant adjustments were reflected in earnings in Fiscal 2011. The excess of the $94.6 million of
proceeds received over estimated costs to be recovered and incurred was $15.0 million which has been
recorded as a reduction of cost of products sold in the consolidated statement of income for the year
ended April 28, 2010.
4. Acquisitions
On April 1, 2011, the Company acquired an 80% stake in Coniexpress S.A. Industrias
Alimenticias (“Coniexpress”), a leading Brazilian manufacturer of the Quero» brand of tomatobased
sauces, tomato paste, ketchup, condiments and vegetables for $493.5 million in cash, which
includes $10.6 million of acquired cash and $60.1 million of short-term investments. The Company
also incurred $11.3 million of pre-tax costs related to the acquisition, consisting primarily of
professional fees, which have been recorded in selling, general and administrative expenses in
the consolidated statement of income. The Company has the right to exercise a call option at any time
requiring the minority partner to sell his 20% equity interest, while the minority partner has the
right to exercise a put option requiring the Company to purchase his 20% equity interest (see Note 17
for additional explanation). The Coniexpress acquisition has been accounted for as a business
combination and, accordingly, the purchase price has been allocated to the assets and liabilities
based upon their estimated fair values as of the acquisition date. The preliminary allocations of the
purchase price resulted in goodwill of $300.2 million, which was assigned to the Rest of World
segment and is not deductible for tax purposes. In addition, $161.9 million of intangible assets were
acquired, $142.0 million of which relate to trademarks which are not subject to amortization. The
remaining $19.9 million represents customer-related assets which will be amortized over 15 years. In
addition, the stock purchase agreement provides the Company with rights to recover from the sellers
a portion of the costs associated with certain contingent liabilities incurred pre-acquisition. Based on
the Company’s assessment as of the acquisition date, a $26.3 million indemnification asset has been
recorded in Other non-current assets related to a contingent liability of $52.6 million recorded in
Other non-current liabilities.
On November 2, 2010, the Company acquired Foodstar Holding Pte (“Foodstar”), a manufacturer
of soy sauces and fermented bean curd in China for $165.4 million in cash, which includes
$30.0 million of acquired cash, as well as a potential earn-out payment in Fiscal 2014 contingent
upon certain net sales and EBITDA (earnings before interest, taxes, depreciation and amortization)
targets during Fiscals 2013 and 2014. In accordance with accounting principles generally accepted in
the United States of America, a liability of $44.5 million was recognized for an estimate of the
acquisition date fair value of the earn-out and is included in Other non-current liabilities in our
consolidated balance sheet as of April 27, 2011. Any change in the fair value of the earn-out
subsequent to the acquisition date, including an increase resulting from the passage of time, is
and will be recognized in earnings in the period of the estimated fair value change. See Note 10 for
further explanation. A change in fair value of the earn-out could have a material impact on the
Company’s earnings in the period of the change in estimate.
The Foodstar acquisition has been accounted for as a business combination and, accordingly, the
purchase price has been allocated to the assets and liabilities based upon their estimated fair values
as of the acquisition date. The allocations of the purchase price resulted in goodwill of $77.3 million,
which was assigned to the Asia/Pacific segment and is not deductible for tax purposes. In addition
$70.7 million of intangible assets were acquired, $42.4 million of which relate to trademarks and are
not subject to amortization. The remaining $28.3 million will be amortized over a weighted average
life of 31 years.
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