10-KT 1 hnz10k122913.htm 10-KT HNZ 10K 12/29/13


SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
¨
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 
 
or
þ
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 
For the transition period from April 29, 2013 to December 29, 2013
Commission File Number 1-3385
H. J. HEINZ COMPANY
(Exact name of registrant as specified in its charter)
PENNSYLVANIA
 
25-0542520
(State of Incorporation)
 
(I.R.S. Employer Identification No.)
One PPG Place
 
15222
Pittsburgh, Pennsylvania
 
(Zip Code)
(Address of principal executive offices)
 
 
412-456-5700
(Registrant’s telephone number)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
None

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes o     No þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes þ     No o
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes þ     No o
Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes þ     No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer o
 
Accelerated filer o
 
Non-accelerated filer þ
(Do not check if a smaller reporting company)
 
Smaller reporting company o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o     No þ
None of the voting or non-voting common equity of the registrant is held by non-affiliates or of the registrant. There is no public market for any class of common equity of the registrant.
The number of shares of the Registrant’s Common Stock, no par value per share, outstanding as of December 29, 2013, was 100 shares.





Introductory Note
On June 7, 2013, H. J. Heinz Company (the “Company,” “we,” “us,” and “our”) was acquired by H.J. Heinz Holding Corporation (formerly known as Hawk Acquisition Holding Corporation) (“Parent”), a Delaware corporation controlled by Berkshire Hathaway Inc. (“Berkshire Hathaway”) and 3G Special Situations Fund III, L.P. (“3G Capital,” and together with Berkshire Hathaway, the “Sponsors”), pursuant to the Agreement and Plan of Merger, dated February 13, 2013 (the “Merger Agreement”), as amended by the Amendment to Agreement and Plan of Merger, dated March 4, 2013 (the “Amendment”), by and among the Company, Parent and Hawk Acquisition Sub, Inc., a Pennsylvania corporation and wholly owned subsidiary of Parent (“Merger Subsidiary”), in a transaction hereinafter referred to as the “Merger.” As a result of the Merger, all issued and outstanding shares of our common stock outstanding immediately prior to the effective time of the Merger was converted into the right to receive $72.50 in cash, without interest and less applicable withholding taxes thereon, and the Company continued as the surviving corporation in the Merger, becoming an indirect wholly owned subsidiary of Parent.
The total cash consideration paid in connection with the Merger was approximately $28.75 billion, which was funded from equity contributions from the Sponsors, as well as proceeds received by Merger Subsidiary in connection with debt financing provided by JPMorgan Chase Bank, N.A., Wells Fargo Bank, National Association and a syndicate of other lenders pursuant to a new senior secured credit facility (the “Senior Credit Facilities”) and upon the issuance of the Notes (as defined and described herein).
As a result of the Merger and the transactions entered into in connection therewith, we have inherited the liabilities and obligations of Merger Subsidiary, including Merger Subsidiary's obligations under the Senior Credit Facilities. The Senior Credit Facilities consist of (i)(a) term B-1 loans in an aggregate principal amount of $2.95 billion (the “B-1 Loans”) and (b) term B-2 loans in aggregate principal amount of $6.55 billion (the “B-2 Loans”) in each case under the new senior secured term loan facilities (the “Term Loan Facilities”) and (ii) revolving loans of up to $2 billion (including revolving loans, swingline loans and letters of credit), a portion of which may be denominated in Euro, Sterling, Australian Dollars, Japanese Yen or New Zealand Dollars, under the new senior secured revolving loan facilities (the “Revolving Credit Facilities”). Concurrently with the consummation of the Merger, the full amount of the term loan was drawn, and no revolving loans were drawn.
Also on June 7, 2013, in connection with the Merger, we executed a Joinder Agreement (the “Purchase Agreement Joinder”) to the Purchase Agreement, dated March 22, 2013 (the “Purchase Agreement”), among Merger Subsidiary, Parent and the several initial purchasers named in the schedule thereto (the “Initial Purchasers”), relating to the issuance and sale by Merger Subsidiary to the Initial Purchasers of $3.1 billion in aggregate principal amount of Merger Subsidiary's 4.25% Second Lien Senior Secured Notes due 2020 (the “Notes”), pursuant to which the H. J. Heinz Company and certain of its subsidiaries became parties to the Purchase Agreement. On June 7, 2013, the Company entered into a supplemental indenture (the "Supplemental Indenture") to the Indenture dated as of April 1, 2013 governing the Notes pursuant to which the Company assumed all of the obligations of Merger Subsidiary as issuer of the Notes.
We refer to the Merger and the related transactions, including the issuance and sale of the Notes, the entering into the Purchase Agreement Joinder, the Supplemental Indenture and the borrowings under the Senior Credit Facilities, as the “Transactions.”
As a result of the Merger, our common stock is no longer publicly traded.
CAUTIONARY STATEMENT RELEVANT TO FORWARD-LOOKING INFORMATION
Statements about future growth, profitability, costs, expectations, plans, or objectives included in this report, including in management's discussion and analysis, and the financial statements and footnotes, are forward-looking statements based on management's estimates, assumptions, and projections. These forward-looking statements are subject to risks, uncertainties, assumptions and other important factors, many of which may be beyond the Company's control and could cause actual results to differ materially from those expressed or implied in this report and the financial statements and footnotes. Uncertainties contained in such statements include, but are not limited to:

the ability of the Company to retain and hire key personnel and maintain relationships with customers, suppliers and other business partners,

sales, volume, earnings, or cash flow growth,

general economic, political, and industry conditions, including those that could impact consumer spending,

competitive conditions, which affect, among other things, customer preferences and the pricing of products, production, and energy costs,





competition from lower-priced private label brands,

increases in the cost and restrictions on the availability of raw materials including agricultural commodities and packaging materials, the ability to increase product prices in response, and the impact on profitability,

the ability to identify and anticipate and respond through innovation to consumer trends,

the need for product recalls,

the ability to maintain favorable supplier and customer relationships, and the financial viability of those suppliers and customers,

currency valuations and devaluations and interest rate fluctuations,

changes in credit ratings, leverage, and economic conditions, and the impact of these factors on our cost of borrowing and access to capital markets,

our ability to effectuate our strategy, including our continued evaluation of potential opportunities, such as strategic acquisitions, joint ventures, divestitures and other initiatives, our ability to identify, finance and complete these transactions and other initiatives, and our ability to realize anticipated benefits from them,

the ability to successfully complete cost reduction programs and increase productivity,

the ability to effectively integrate acquired businesses,

new products, packaging innovations, and product mix,

the effectiveness of advertising, marketing, and promotional programs,

supply chain efficiency,

cash flow initiatives,

risks inherent in litigation, including tax litigation,

the ability to further penetrate and grow and the risk of doing business in international markets, particularly our emerging markets, economic or political instability in those markets, strikes, nationalization, and the performance of business in hyperinflationary environments, in each case, such as Venezuela; and the uncertain global macroeconomic environment and sovereign debt issues, particularly in Europe,

changes in estimates in critical accounting judgments and changes in laws and regulations, including tax laws,

the success of tax planning strategies,

the possibility of increased pension expense and contributions and other people-related costs,

the potential adverse impact of natural disasters, such as flooding and crop failures, and the potential impact of climate change,

the ability to implement new information systems, potential disruptions due to failures in information technology systems, and risks associated with social media, and

other factors described in "Risk Factors" below.

The forward-looking statements are and will be based on management's then current views and assumptions regarding future events and speak only as of their dates. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by the securities laws.




PART I

Item 1.
Business.
On October 21, 2013, the Company's Board of Directors approved a change in the Company's fiscal year end from the Sunday closest to April 30 to the Sunday closest to December 31. As a result of this change, the consolidated financial statements include presentation of the Successor period from February 8, 2013 through December 29, 2013 and the Predecessor period from April 29, 2013 through June 7, 2013 (collectively the "transition period") as a separate transition period.
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 in Sharpsburg, Pennsylvania by Henry J. Heinz. H. J. Heinz Company and its subsidiaries (collectively, the “Company”) manufacture and market an extensive line of food products throughout the world. The Company’s principal products include ketchup, condiments and sauces, frozen food, soups, beans and pasta meals, infant nutrition and other food products.
The Company’s products are manufactured and packaged to provide safe, wholesome foods for consumers, as well as foodservice and institutional customers. Many products are prepared from recipes developed in the Company’s innovation and research centers. Ingredients are carefully selected, inspected and passed on to factory kitchens where they are processed, after which the intermediate product is filled automatically into containers of glass, metal, plastic, paper or fiberboard, which are then sealed. Products are prepared by sterilization, blending, fermentation, pasteurization, homogenization, chilling, freezing, pickling, drying, freeze drying, baking or extruding, then labeled and cased for market. Quality assurance procedures are designed for each product and process and applied for quality and compliance with applicable laws.
The Company manufactures (and contracts for the manufacture of) its products from a wide variety of raw food materials. Pre-season contracts are made with farmers for certain raw materials such as a portion of the Company’s requirements of tomatoes, cucumbers, potatoes, onions and some other fruits and vegetables. Ingredients, such as dairy products, meat, sugar and other sweeteners, including high fructose corn syrup, spices, flour and fruits and vegetables, are purchased from approved suppliers.
The following table lists the number of the Company’s principal food processing factories and major trademarks by region:

 
Factories
 
 
 
Owned
 
Leased
 
Major Owned and Licensed Trademarks
North America
15

 
4

 
Heinz, Classico, Jack Daniel’s*, Wyler’s, Heinz Bell ’Orto, Chef Francisco, Ore-Ida, Bagel Bites, Weight Watchers* Smart Ones, Poppers, T.G.I. Friday’s*, Delimex, Escalon, PPI, Nancy’s, Lea & Perrins, Renee’s Gourmet, HP
Europe
17

 

 
Heinz, Orlando, Karvan Cevitam, Roosvicee, Weight Watchers*, Farley’s, Plasmon, Nipiol,  Pudliszki, Honig, De Ruijter, Aunt Bessie*, Lea & Perrins, HP, Amoy*, Daddies, Wyko, Benedicta
Asia/Pacific
21

 

 
Heinz, Wattie’s, ABC, Farley’s, Greenseas, Ocean Blue, Ox & Palm, Ore-Ida, Lea & Perrins, HP, Classico, Weight Watchers*, Cottee’s, Complan, Glucon D, Golden Circle, Original Juice Co., Master, Guanghe
Rest of World
6

 
2

 
Heinz, Farley’s, Complan, HP, Lea & Perrins, Classico, Wattie’s, Quero
 
59


6

 
* Used under license

The Company also owns or leases office space, warehouses, distribution centers and research and other facilities throughout the world. The Company’s food processing factories and principal properties are in good condition and are satisfactory for the purposes for which they are being utilized.
The Company has developed or participated in the development of certain of its equipment, manufacturing processes and packaging, and maintains patents and has applied for patents for some of those developments. The Company regards these patents and patent applications as important but does not consider any one or group of them to be materially important to its business as a whole.
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, operating income and cash flows of the Company. Consequently, comparisons between quarters have always been more meaningful when made between the same quarters of prior 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 prepared foods, including branded retail products,

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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 products are sold through its own sales organizations and through independent brokers, agents and distributors to chain, wholesale, cooperative and independent grocery accounts, convenience stores, bakeries, pharmacies, mass merchants, club stores, foodservice distributors and institutions, including hotels, restaurants, hospitals, health-care facilities, and certain government agencies. For the Successor period from February 8, 2013 through December 29, 2013, the Predecessor period from April 29, 2013 through June 7, 2013, Fiscal 2013, 2012 and 2011, one customer, Wal-Mart Stores Inc., represented approximately 10% of the Company’s sales. In addition, the Company has sales to a third party which is controlled by one of the Sponsors totaling less than 1% of the Company's consolidated net sales. We closely monitor the credit risk associated with our customers and to date have not experienced material losses.
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 2014 and the succeeding fiscal year are not material and are not expected to materially affect the earnings, cash flows or competitive position of the Company.
The Company’s factories are subject to inspections by various governmental agencies in the U.S. and other countries where the Company does business, including the United States Department of Agriculture, and the Occupational Health and Safety Administration, and its products must comply with the applicable laws, including food and drug laws, such as the Federal Food and Cosmetic Act of 1938, as amended, and the Federal Fair Packaging or Labeling Act of 1966, as amended, of the jurisdictions in which they are manufactured and marketed.
The Company had approximately 28,700 full time employees, including open positions, at December 29, 2013.
Segment information is set forth in this report in Note 17, “Segment Information” in Item 8—“Financial Statements and Supplementary Data.”
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 operations.
The Company’s annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to section 13(a) or 15(d) of the Exchange Act are available free of charge on the Company’s web site at www.heinz.com, as soon as reasonably practicable after being filed or furnished to the Securities and Exchange Commission (“SEC”). Our reports filed with the SEC are also made available on its website at www.sec.gov.

Recent Developments
Completion of Acquisition by Berkshire Hathaway and 3G Capital
On June 7, 2013, the Company was acquired by Parent, a Delaware corporation controlled by Sponsors, pursuant to the Merger Agreement, as amended by the Amendment, by and among the Company, Parent and Merger Subsidiary, in a transaction hereinafter referred to as the “Merger.” As a result of the Merger, all issued and outstanding shares of our common stock outstanding immediately prior to the effective time of the Merger was converted into the right to receive $72.50 in cash, without interest and less applicable withholding taxes thereon, and the Company continued as the surviving corporation in the Merger, becoming an indirect wholly owned subsidiary of Parent.
The total cash consideration paid in connection with the Merger was approximately $28.75 billion, including the assumption of the Company's outstanding debt, which was funded from equity contributions from the Sponsors, as well as proceeds received by Merger Subsidiary from the Senior Credit Facilities and upon the issuance of the Notes (as defined and described herein). The Senior Credit Facilities consist of:
$9.5 billion in senior secured term loans, with tranches of 6 and 7 year maturities and fluctuating interest rates based on, at the Company's election, base rate or LIBOR plus a spread on each of the tranches, with respective spreads ranging from 125-150 basis points for base rate loans with a 2% base rate floor and 225-250 basis points for LIBOR loans with a 1% LIBOR floor, and
$2.0 billion senior secured revolving credit facility with a 5 year maturity and a fluctuating interest rate based on, at the Company's election, base rate or LIBOR, with respective spreads ranging from 50-100 basis points for base rate loans and 150-200 basis points for LIBOR loans, on which nothing is currently drawn.

On June 7, 2013, this indebtedness was assumed by the Company.

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On April 1, 2013, in connection with the Merger, Merger Subsidiary completed the private placement of $3.1 billion aggregate principal amount of 4.25% Second Lien Senior Secured Notes due 2020 (the “Notes”)  to initial purchasers for resale by the Initial Purchasers to qualified institutional buyers pursuant to Rule 144A under the Securities Act and to persons outside the United States under Regulation S of the Securities Act. The Notes were issued pursuant to an indenture (the “Indenture”), dated as of April 1, 2013, by and among Merger Subsidiary, Hawk Acquisition Intermediate Corporation II and Wells Fargo Bank, National Association, as trustee (in such capacity, the “Trustee”) and as collateral agent (in such capacity, the “Collateral Agent”). On June 7, 2013, the Company, certain of its direct and indirect wholly owned domestic subsidiaries (the “Guarantors”), the Trustee and the Collateral Agent entered into a supplemental indenture (the “Supplemental Indenture”) to the Indenture pursuant to which the Company assumed all of the obligations of Merger Subsidiary as issuer of the Notes. The Notes mature in 2020 and are required, within one year of consummation of the Merger Agreement, to be exchanged for notes registered with the SEC.
In addition, in connection with the Merger, Parent issued to Berkshire Hathaway 80,000 shares of its 9% Cumulative Perpetual Series A Preferred Stock for $8 billion.
In the Merger, (i) each outstanding share of Company common stock (other than shares owned by the Company, Parent, Merger Sub or any other direct or indirect wholly owned subsidiary of Parent, and in each case not held on behalf of third parties) was cancelled and automatically converted into the right to receive $72.50 in cash, without interest and less applicable withholding taxes thereon (the “Merger Consideration”), (ii) each outstanding stock option, whether vested or unvested, was cancelled and automatically converted into the right to receive, with respect to each share subject to the option, the Merger Consideration less the exercise price per share, (iii) each outstanding Company phantom unit, whether vested or unvested, was cancelled and automatically converted into the right to receive the Merger Consideration, and (iv) each outstanding Company restricted stock unit (other than retention restricted stock units, which will remain subject to the vesting schedule pursuant to the existing terms of the applicable award agreements and that the general timing of payment would be in accordance with such terms), whether vested or unvested, was cancelled and automatically converted into the right to receive, with respect to each share subject to the restricted stock unit, the Merger Consideration plus any accrued and unpaid dividend equivalents, except that payment in respect of Company restricted stock units that have been deferred will be made in accordance with the terms of the award and the applicable deferral election made by the holder.
At the effective time of the Merger, each holder of a certificate formerly representing any shares of Company common stock or of book-entry shares no longer had any rights with respect to the shares, except for the right to receive the Merger Consideration upon surrender thereof.
The acquisition has been accounted for as a purchase business combination.  The application of purchase accounting as of the closing date has had a material effect on the Company's results of operations for periods after the acquisition. See "The Merger" in Item 7- "Management's Discussion and Analysis of Financial Condition and Results of Operations" and Note 4, "Merger and Acquisition" in Item 8- "Financial Statements and Supplementary Data".
Financing implications of the acquisition on our historic debt
A substantial portion of the Company's indebtedness was subject to acceleration upon a change of control or required the Company to offer holders the option to repurchase such indebtedness from such holders (assuming such change of control triggered certain downgrades in the ratings of the Company's debt).  Certain of the Company's outstanding indebtedness at June 7, 2013 that was not subject to acceleration upon a change of control and that either did not contain change of control repurchase obligations or where the holders did not elect to have such indebtedness repurchased in a change of control offer remain outstanding. 
On March 13, 2013, the Company launched a successful consent solicitation relating to the 7.125% Notes due 2039 seeking a waiver of the change of control provisions as applicable to the Merger Agreement.
Changes in the Directors and Officers of the Company
On June 7, 2013, in connection with the Merger and related transactions, William R. Johnson resigned as Chief Executive Officer of the Company and Arthur B. Winkleblack resigned as Chief Financial Officer of the Company. Bernardo Hees was appointed as Chief Executive Officer of the Company and Paulo Basilio was appointed as Chief Financial Officer of the Company, each effective as of the consummation of the Merger.
Also in accordance with the terms of the Merger Agreement, as of the effective time of the Merger, each of William R. Johnson, Charles E. Bunch, Leonard S. Coleman Jr., John G. Drosdick, Edith E. Holiday, Candace Kendle, Franck J. Moison, Dean R. O'Hare, Nelson Peltz, Dennis H. Reilley, Lynn C. Swann, Thomas J. Usher and Michael F. Weinstein (the “Former Directors”) ceased serving as members of the board of directors of the Company and, in connection therewith, the Former Directors also ceased serving on any committees of which such Former Directors were members.

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Warren Buffett, Alexandre Behring, Gregory Abel, Jorge Paulo Lemann, Marcel Herrmann Telles and Tracy Britt Cool were elected as new members of the board of directors of the Company on June 7, 2013.
Item 1A.
Risk Factors.
In addition to the factors discussed elsewhere in this report, the following risks and uncertainties could materially and adversely affect the Company’s business, financial condition, and results of operations. Additional risks and uncertainties that are not presently known to the Company or are currently deemed by the Company to be immaterial also may impair the Company’s business operations and financial condition.
Risks Related to Our Business
Competitive product and pricing pressures in the food industry and the financial condition of customers and suppliers could adversely affect the Company’s ability to gain or maintain market share and/or profitability.
The Company operates in the highly competitive food industry, competing with other companies that have varying abilities to withstand changing market conditions. Any significant change in the Company’s relationship with a major customer, including changes in product prices, sales volume, or contractual terms may impact financial results. Such changes may result because the Company’s competitors may have substantial financial, marketing, and other resources that may change the competitive environment. Private label brands sold by retail customers, which are typically sold at lower prices, are a source of competition for certain of our product lines. Such competition could cause the Company to reduce prices and/or increase capital, marketing, and other expenditures, or could result in the loss of category share. Such changes could have a material adverse impact on the Company’s net income. As the retail grocery trade continues to consolidate, the larger retail customers of the Company could seek to use their positions to improve their profitability through lower pricing and increased promotional programs. If the Company is unable to use its scale, marketing expertise, product innovation, and category leadership positions to respond to these changes, or is unable to increase its prices, its profitability and volume growth could be impacted in a materially adverse way. The success of our business depends, in part, upon the financial strength and viability of our suppliers and customers. The financial condition of those suppliers and customers is affected in large part by conditions and events that are beyond our control. A significant deterioration of their financial condition could adversely affect our financial results.
The Company’s performance may be adversely affected by economic and political conditions in the U.S. and in various other nations where it does business.
The Company’s performance has been in the past and may continue in the future to be impacted by economic and political conditions in the United States and in other nations. Such conditions and factors include changes in applicable laws and regulations, including changes in food and drug laws, accounting standards and critical accounting estimates, taxation requirements and environmental laws. Other factors impacting our operations in the U.S., Venezuela and other international locations where the Company does business include export and import restrictions, currency exchange rates, currency devaluation, recessionary conditions, foreign ownership restrictions, nationalization, the impact of hyperinflationary environments, terrorist acts, and political unrest. Such factors in either domestic or foreign jurisdictions could materially and adversely affect our financial results. In addition, recent uncertainty in Europe, particularly in Greece, Italy, Ireland, Portugal and Spain could adversely affect our Euro-denominated assets and global operations.
Increases in the cost and restrictions on the availability of raw materials could adversely affect our financial results.
The Company sources raw materials including agricultural commodities such as tomatoes, cucumbers, potatoes, onions, other fruits and vegetables, dairy products, meat, sugar and other sweeteners, including high fructose corn syrup, spices, and flour, as well as packaging materials such as glass, plastic, metal, paper, fiberboard, and other materials and inputs such as water, in order to manufacture products. The availability or cost of such commodities may fluctuate widely due to government policy and regulation, crop failures or shortages due to plant disease or insect and other pest infestation, weather conditions, potential impact of climate change, increased demand for biofuels, or other unforeseen circumstances. Additionally, the cost of raw materials and finished products may fluctuate due to movements in cross-currency transaction rates. To the extent that any of the foregoing or other unknown factors increase the prices of such commodities or materials and the Company is unable to increase its prices or adequately hedge against such changes in a manner that offsets such changes, the results of its operations could be materially and adversely affected. Similarly, if supplier arrangements and relationships result in increased and unforeseen expenses, the Company’s financial results could be materially and adversely impacted.
Disruption of our supply chain could adversely affect our business.
Damage or disruption to our manufacturing or distribution capabilities due to weather, natural disaster, fire, terrorism, pandemic, strikes, the financial and/or operational instability of key suppliers, distributors, warehousing and transportation

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providers, or brokers, or other reasons could impair our ability to manufacture or sell our products. To the extent the Company is unable to, or cannot, financially mitigate the likelihood or potential impact of such events, or to effectively manage such events if they occur, particularly when a product is sourced from a single location, there could be a materially adverse affect on our business and results of operations, and additional resources could be required to restore our supply chain.
Higher energy costs and other factors affecting the cost of producing, transporting, and distributing the Company’s products could adversely affect our financial results.
Rising fuel and energy costs may have a significant impact on the cost of operations, including the manufacture, transportation, and distribution of products. Fuel costs may fluctuate due to a number of factors outside the control of the Company, including government policy and regulation and weather conditions. Additionally, the Company may be unable to maintain favorable arrangements with respect to the costs of procuring raw materials, packaging, services, and transporting products, which could result in increased expenses and negatively affect operations. If the Company is unable to hedge against such increases or raise the prices of its products to offset the changes, its results of operations could be materially and adversely affected.
The results of the Company could be adversely impacted as a result of increased pension, labor, and people-related expenses.
Inflationary pressures and any shortages in the labor market could increase labor costs, which could have a material adverse effect on the Company’s consolidated operating results or financial condition. The Company’s labor costs include the cost of providing employee benefits in the U.S. and foreign jurisdictions, including pension, health and welfare, and severance benefits. Any declines in market returns could adversely impact the funding of pension plans, the assets of which are invested in a diversified portfolio of equity and fixed income securities and other investments. Additionally, the annual costs of benefits vary with increased costs of health care and the outcome of collectively-bargained wage and benefit agreements.
The impact of various food safety issues, environmental, legal, tax, and other regulations and related developments could adversely affect the Company’s sales and profitability.
The Company is subject to numerous food safety and other laws and regulations regarding the manufacturing, marketing, and distribution of food products. These regulations govern matters such as ingredients, advertising, taxation, relations with distributors and retailers, health and safety matters, and environmental concerns. The ineffectiveness of the Company’s planning and policies with respect to these matters, and the need to comply with new or revised laws or regulations with regard to licensing requirements, trade and pricing practices, environmental permitting, or other food or safety matters, or new interpretations or enforcement of existing laws and regulations, as well as any related litigation, may have a material adverse effect on the Company’s sales and profitability. Influenza or other pandemics could disrupt production of the Company’s products, reduce demand for certain of the Company’s products, or disrupt the marketplace in the foodservice or retail environment with consequent material adverse effects on the Company’s results of operations.
The need for and effect of product recalls could have an adverse impact on the Company’s business.
If any of the Company’s products become misbranded or adulterated, the Company may need to conduct a product recall. The scope of such a recall could result in significant costs incurred as a result of the recall, potential destruction of inventory, and lost sales. Should consumption of any product cause injury, the Company may be liable for monetary damages as a result of a judgment against it. A significant product recall or product liability case could cause a loss of consumer confidence in the Company’s food products and could have a material adverse effect on the value of its brands and results of operations.
The failure of new product or packaging introductions to gain trade and consumer acceptance and changes in consumer preferences could adversely affect our sales.
The success of the Company is dependent upon anticipating and reacting to changes in consumer preferences, including health and wellness. There are inherent marketplace risks associated with new product or packaging introductions, including uncertainties about trade and consumer acceptance. Moreover, success is dependent upon the Company’s ability to identify and respond to consumer trends through innovation. The Company may be required to increase expenditures for new product development. The Company may not be successful in developing new products or improving existing products, or its new products may not achieve consumer acceptance, each of which could materially and negatively impact sales.
The failure to successfully integrate acquisitions and joint ventures into our existing operations or the failure to gain applicable regulatory approval for such transactions or divestitures could adversely affect our financial results.
The Company’s ability to efficiently integrate acquisitions and joint ventures into its existing operations also affects the financial success of such transactions. The Company may seek to expand its business through acquisitions and joint ventures, and may divest underperforming or non-core businesses. The Company’s success depends, in part, upon its ability to identify such

6



acquisition, joint venture, and divestiture opportunities and to negotiate favorable contractual terms. Activities in such areas are regulated by numerous antitrust and competition laws in the U. S., the European Union, and other jurisdictions, and the Company may be required to obtain the approval of acquisition and joint venture transactions by competition authorities, as well as satisfy other legal requirements. The failure to obtain such approvals could materially and adversely affect our results.
The Company’s operations face significant foreign currency exchange rate exposure, which could negatively impact its operating results.
The Company holds assets and incurs liabilities, earns revenue, and pays expenses in a variety of currencies other than the U.S. dollar, primarily the British Pound, Euro, Australian dollar, Canadian dollar, and New Zealand dollar. The Company’s consolidated financial statements are presented in U.S. dollars, and therefore the Company must translate its assets, liabilities, revenue, and expenses into U.S. dollars for external reporting purposes. Increases or decreases in the value of the U.S. dollar relative to other currencies may materially and negatively affect the value of these items in the Company’s consolidated financial statements, even if their value has not changed in their original currency. In addition, the impact of fluctuations in foreign currency exchange rates on transaction costs ( i.e., the impact of foreign currency movements on particular transactions such as raw material sourcing), most notably in the U.K., could materially and adversely affect our results.
The failure to implement our growth plans could adversely affect the Company’s ability to increase net income and generate cash.
The success of the Company could be impacted by its inability to continue to execute on its growth plans regarding product innovation, implementing cost-cutting measures, improving supply chain efficiency, enhancing processes and systems, including information technology systems, on a global basis, and growing market share and volume. The failure to fully implement the plans, in a timely manner or within our cost estimates, could materially and adversely affect the Company’s ability to increase net income. Additionally, the Company’s ability to pay cash dividends will depend upon its ability to generate cash and profits, which, to a certain extent, is subject to economic, financial, competitive, and other factors beyond the Company’s control.
The Sponsors control us and may have conflicts of interest with us in the future.
As a result of the Merger on June 7, 2013, H. J. Heinz Company is now controlled by the Sponsors. The Sponsors beneficially own substantially all of the equity interests in Parent. The Sponsors have control over our decisions to enter into any corporate transaction and have the ability to prevent any transaction that requires the approval of shareholders. For example, the Sponsors could cause us to make acquisitions that increase the amount of our indebtedness. Additionally, the Sponsors are in the business of making investments in companies and may from time to time acquire and hold interests in businesses that compete directly or indirectly with us. The Sponsors may also pursue acquisition opportunities that may be complementary to our business, and, as a result, those acquisition opportunities may not be available to us. So long as the Sponsors continue to own a significant amount of the equity of Parent, they will continue to be able to strongly influence or effectively control our decisions.

Our business could be adversely impacted as a result of the Merger and significant costs, expenses and fees.

The Merger could cause disruptions to our business or business relationships, which could have an adverse impact on our financial condition, results of operations and cash flows. For example:

the attention of our management may be directed to transaction-related considerations or activities and may be diverted from the day-to-day operations of our business;

our associates may experience uncertainty about their future roles with us, which might adversely affect our ability to retain and hire key personnel and other employees; and

vendors or other parties with which we maintain business relationships may experience uncertainty about our future and seek alternative relationships with third parties or seek to alter their business relationships with us.

In addition, we incurred significant costs, expenses and fees for professional services and other transaction costs in connection with the Merger.


7



The Company is increasingly dependent on information technology, and potential disruption, cyber attacks, security problems, and expanding social media vehicles present new risks.

The Company is increasingly dependent on information technology systems to manage and support a variety of business processes and activities, and any significant breakdown, invasion, destruction, or interruption of these systems could negatively impact operations. In addition, there is a risk of business interruption and reputational damage from leakage of confidential information.

The inappropriate use of certain media vehicles could cause brand damage or information leakage. Negative posts or comments about the Company on any social networking web site could seriously damage its reputation. In addition, the disclosure of non-public company sensitive information through external media channels could lead to information loss. Identifying new points of entry as social media continues to expand presents new challenges. Any business interruptions or damage to the Company's reputation could negatively impact the Company's financial condition and results of operation.


Risks Related to Our Indebtedness and Certain Other Obligations
Our indebtedness could adversely affect our ability to raise additional capital to fund our operations and make strategic acquisitions, limit our ability to react to changes in the economy or our industry, expose us to interest rate risk to the extent of our variable rate debt and prevent us from meeting our obligations under our indebtedness, including the Notes.
In connection with the Merger, we incurred approximately $12.6 billion in indebtedness under the Term Loan Facilities and the Notes. We can also borrow additional secured debt up to $2.0 billion under our Revolving Credit Facilities. Our Senior Credit Facilities also provide for $2.25 billion in uncommitted incremental facilities, the availability of which is subject to our meeting certain conditions, and the amount of which may be increased with unlimited additional incremental facilities so long we maintain a pro forma first lien senior secured leverage ratio of 4.75 to 1.00. No incremental facilities were in effect at the closing of the Merger or are currently in effect. See “Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Financial Position.”
Our high degree of indebtedness could have important consequences for our creditors, including holders of the Notes. For example, they could:
limit our ability to obtain additional financing for working capital, capital expenditures, research and development, debt service requirements, acquisitions and general corporate or other purposes;
restrict us from making strategic acquisitions or cause us to make non-strategic divestitures;
limit our ability to adjust to changing market conditions and place us at a competitive disadvantage compared to our competitors who are not as highly leveraged;
increase our vulnerability to general economic and industry conditions;
expose us to the risk of increased interest rates as the borrowings under our Senior Credit Facilities will be at variable rates of interest (however we have entered into swap arrangements which may serve to mitigate variable interest rate risk while they remain in place);
make it more difficult for us to make payments on our indebtedness; and
require a substantial portion of cash flow from operations to be dedicated to the payment of principal and interest on our indebtedness, thereby reducing our ability to use our cash flow to fund our operations, capital expenditures and future business opportunities.

8



Despite current indebtedness levels and restrictive covenants, we and our subsidiaries may incur additional indebtedness in the future. This could further exacerbate the risks associated with our substantial financial leverage.
The terms of the indenture governing our Notes and the credit agreements governing our Senior Credit Facilities permit us to incur a substantial amount of additional debt, including secured debt. Any additional borrowings under our Senior Credit Facilities, and certain other secured debt, would be senior to the Notes and the guarantees thereto to the extent of the value of the assets securing such indebtedness. If new debt is added to our and our subsidiaries' current debt levels, the risks that we now face as a result of our leverage would intensify. See “Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Financial Position.”
Our debt agreements contain restrictions that limit our flexibility in operating our business.
The credit agreement governing our Senior Credit Facilities and the indenture governing our Notes contain various covenants that limit our ability to engage in specified types of transactions. These covenants limit our, our immediate parent's and our restricted subsidiaries' ability to, among other things, incur or guarantee additional indebtedness, pay dividends on, or redeem or repurchase, our capital stock, make certain acquisitions or investments, materially change our business, incur or permit to exist certain liens, enter into transactions with affiliates or sell our assets to, or merge or consolidate with or into, another company, in each case with customary exceptions.
Upon the occurrence of an event of default under our Senior Credit Facilities, the lenders thereunder could elect to declare all amounts outstanding under our Senior Credit Facilities to be immediately due and payable and terminate all commitments to extend further credit. If we were unable to repay those amounts, the lenders under our Senior Credit Facilities could proceed against the collateral granted to them to secure that indebtedness. We have pledged a significant portion of our assets as collateral under our Senior Credit Facilities. If the lenders under our Senior Credit Facilities accelerate the repayment of borrowings, we cannot assure you that we will have sufficient assets to repay our Senior Credit Facilities, as well as our other secured and unsecured indebtedness, including our outstanding Notes.
To service our indebtedness, we will require a significant amount of cash and our ability to generate cash depends on many factors beyond our control.
Our ability to make cash payments on and to refinance our indebtedness and to fund planned capital expenditures will depend on our ability to generate significant operating cash flow in the future. This ability is, to a significant extent, subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control.
Our business may not generate sufficient cash flow from operations, and future borrowings may not be available under our Senior Credit Facilities, in an amount sufficient to enable us to pay our indebtedness, including the outstanding Notes, or to fund our other liquidity needs. In any such circumstance, we may need to refinance all or a portion of our indebtedness, including our Senior Credit Facilities and the Notes, on or before maturity. We may not be able to refinance any of our indebtedness, including our Senior Credit Facilities and the Notes, on commercially reasonable terms or at all. If we cannot service our indebtedness, we may have to take actions such as selling assets, seeking additional equity or reducing or delaying capital expenditures, strategic acquisitions and investments. Any such action, if necessary, may not be effected on commercially reasonable terms or at all. The credit agreements governing our Senior Credit Facilities and the indenture governing the Notes restrict our ability to sell assets and use the proceeds from such sales.
If we are unable to generate sufficient cash flow or are otherwise unable to obtain funds necessary to meet required payments of principal, premium, if any, and interest on our indebtedness, or if we otherwise fail to comply with the various covenants in the instruments governing our indebtedness (including covenants in the credit agreement governing our Senior Credit Facilities and the indenture governing the Notes), we could be in default under the terms of the agreements governing such indebtedness. In the event of such default, the holders of such indebtedness could elect to declare all the funds borrowed thereunder to be due and payable, together with accrued and unpaid interest, the lenders under our Senior Credit Facilities could elect to terminate their commitments thereunder, cease making further loans and institute foreclosure proceedings against our assets, and we could be forced into bankruptcy or liquidation. If our operating performance declines, we may in the future need to obtain waivers from the required lenders under our Senior Credit Facilities to avoid being in default. If we breach our covenants under the credit agreements governing our Senior Credit Facilities and seek a waiver, we may not be able to obtain a waiver from the required lenders. If this occurs, we would be in default under our Senior Credit Facilities, the lenders could exercise their rights, as described above, and we could be forced into bankruptcy or liquidation.


9




Item 1B.
Unresolved Staff Comments.
Nothing to report under this item.


Item 2.
Properties.
See table in Item 1.


Item 3.
Legal Proceedings.
Nothing to report under this item.


Item 4.
Mine Safety Disclosures.
Nothing to report under this item.


10




PART II

Item 5.
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Prior to the Fiscal 2013 year end, H. J. Heinz Company common stock was traded principally on The New York Stock Exchange under the symbol HNZ. As a result of the Merger, the common stock of the Company is now privately held by a subsidiary of Parent, the sole shareholder of the Company. The Company's stock is no longer traded on The New York Stock Exchange or any other stock exchange or public market. As a result Earnings per share information has not been presented.

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 2009 through 2013 and for the periods from April 29 to June 7 2013 (Predecessor) and February 8 to December 29, 2013 (Successor). All amounts are in thousands except per share data.

 
Successor
 
Predecessor
 
February 8 - December 29, 2013
 
April 29 - June 7, 2013
 
April 28, 2013
 
April 29, 2012
 
April 27, 2011
 
April 28, 2010
 
April 29, 2009
 
(29 Weeks)(3)
 
(6 Weeks)
 
(52 Weeks)
 
(52 1/2 Weeks)
 
(52 Weeks)
 
(52 Weeks)
 
(52 Weeks)
Sales(1)
$
6,239,562

 
$
1,112,872

 
$
11,528,886

 
$
11,507,572

 
$
10,558,636

 
$
10,323,968

 
$
9,826,298

Interest expense(1)
$
408,503

 
$
35,350

 
$
283,607

 
$
293,009

 
$
272,660

 
$
293,574

 
$
336,509

(Loss)/income from continuing operations(1)
$
(66,082
)
 
$
(191,424
)
 
$
1,102,045

 
$
991,123

 
$
1,045,505

 
$
962,840

 
$
969,186

(Loss)/income from continuing operations attributable to H.J. Heinz Company common shareholders(1)
$
(71,385
)
 
$
(194,298
)
 
$
1,087,615

 
$
974,374

 
$
1,029,067

 
$
945,389

 
$
954,297

Short-term debt and current portion of long-term debt
$
251,454

 
NA

 
$
2,160,393

 
$
246,708

 
$
1,534,932

 
$
59,020

 
$
65,638

Long-term debt, exclusive of current portion(2)
$
14,617,646

 
NA

 
$
3,848,339

 
$
4,779,981

 
$
3,078,128

 
$
4,559,152

 
$
5,076,186

Total assets
$
38,972,348

 
NA

 
$
12,939,007

 
$
11,983,293

 
$
12,230,645

 
$
10,075,711

 
$
9,664,184


(1)
Amounts exclude the operating results as well as any associated impairment charges and losses on sale related to the Company’s Shanghai LongFong Foods business in China and U.S. Foodservice frozen desserts business, which were divested in Fiscal 2013, as well as the private label frozen desserts business in the U.K. and the Kabobs and Appetizers And, Inc. businesses in the U.S., which were divested in Fiscal 2010, and all of which have been presented as discontinued operations.
(2)
Long-term debt, exclusive of current portion, includes $122.5 million, $128.4 million, $150.5 million, $207.1 million, and $251.5 million of hedge accounting adjustments associated with interest rate swaps at April 28, 2013, April 29, 2012, April 27, 2011, April 28, 2010, and April 29, 2009, respectively. There were no interest rate swaps requiring such hedge accounting adjustments at December 29, 2013.
(3)
Refers to the weeks of operating activity included in the period. The activity in the period February 8, 2013 to April 28, 2013 related primarily to the issuance of the Second Lien Senior Secured Notes due 2020 and recognition of associated issuance costs and interest expense.
The Successor period results include the following special items:
The Company incurred Merger related costs of $157.9 million consisting primarily of advisory fees, legal, accounting and other professional costs, as well as severance and compensation arrangements pursuant to existing agreements with certain former executives and employees in connection with the Merger. See Note 4, “Merger and Acquisition” in Item 8- “Financial Statements and Supplementary Data” for further explanation.

11



The Company is investing in restructuring and productivity initiatives as part of its ongoing cost reduction efforts with the goal of driving efficiencies and creating fiscal resources that will be reinvested into the Company's business as well as to accelerate overall productivity on a global scale. The Company recorded pre-tax costs related to these initiatives of $410.4 million in the Successor period. See Note 7, “Restructuring and Productivity Initiatives” in Item 8- “Financial Statements and Supplementary Data” for further explanation.
The results of the Predecessor period from April 29, 2013 to June 7, 2013 include the following special items:
Prior to consummation of the Merger, the Company incurred Merger related costs of $112.2 million resulting from the acceleration of expense for stock options, restricted stock units and other compensation plans pursuant to the existing change in control provisions of those plans. The Company also recorded a loss from the extinguishment of debt of $129.4 million for debt required to be repaid upon closing as a result of the change in control. See Note 4, “Merger and Acquisition” in Item 8- “Financial Statements and Supplementary Data” for further explanation.
Fiscal 2013 results include the following special items:
As a result of the Merger, the Company incurred $44.8 million pre-tax of transaction-related costs, including legal, accounting and other professional fees, during the fourth quarter of Fiscal 2013. See Note 4, “Merger and Acquisition” in Item 8- “Financial Statements and Supplementary Data” for further explanation.
Also during the fourth quarter of Fiscal 2013, the Company closed a factory in South Africa resulting in a $3.5 million pre-tax charge primarily related to asset write-downs.
On February 8, 2013, the Venezuelan government announced the devaluation of its currency relative to the U.S. dollar, changing the official exchange rate from 4.30 to 6.30, resulting in a $42.7 million pre-tax currency translation loss during the fourth quarter of Fiscal 2013. See Note 20, "Venezuela- Foreign Currency" in Item 8—"Financial Statement and Supplementary Data" for further explanation.
During the third quarter of Fiscal 2013, the Company renegotiated the terms of the Foodstar Holdings Pte ("Foodstar") earn-out that was due in 2014 resulting in a $12.1 million pre-tax charge in SG&A. See Note 13, "Fair Value Measurements" in Item 8—"Financial Statement and Supplementary Data" for further explanation.

Fiscal 2012 results from continuing operations include expenses of $205.4 million pre-tax for productivity initiatives. See Note 7, "Restructuring and Productivity Initiatives" in Item 8—"Financial Statement and Supplementary Data" for further explanation of these initiatives.

Fiscal 2010 results from continuing operations include expenses of $35.9 million pre-tax for upfront productivity charges and a gain of $15.0 million pre-tax on a property disposal in the Netherlands. The upfront productivity charges include costs associated with targeted workforce reductions and asset write-offs, that were part of a corporation-wide initiative to improve productivity. The asset write-offs related to two factory closures and the exit of a formula business in the U.K.

12




Item 7.
Management's Discussion and Analysis of Financial Condition and Results of Operations.

The Merger
The H.J. Heinz Company has been a pioneer in the food industry for over 140 years and possesses one of the world's best and most recognizable brands - Heinz ®. The Company has a global portfolio of leading brands focused in three core categories, Ketchup and Sauces, Meals and Snacks, and Infant/Nutrition.
On February 13, 2013, the Company entered into the Merger Agreement with Parent and Merger Subsidiary. The terms of the Merger Agreement were unanimously approved by the Company's Board of Directors on February 13, 2013 and by the majority of votes cast at a special shareholder meeting on April 30, 2013. The acquisition was consummated on June 7, 2013, and as a result, Merger Subsidiary merged with and into the Company, with the Company surviving as a wholly owned subsidiary of Holdings, which is in turn an indirect wholly owned subsidiary of Parent. Parent is controlled by the Sponsors. Upon the completion of the Merger, the Company's shareholders received $72.50 in cash for each share of common stock. The total aggregate value of the Merger consideration was approximately $28.75 billion, including the assumption of the Company's outstanding debt. The Merger consideration was funded through a combination of equity contributed by the Sponsors totaling $16.5 billion and proceeds from long-term borrowings totaling $12.6 billion. The Company's capital structure is further discussed under Liquidity and Financial Position.
Purchase Accounting Effects. The Merger was accounted for using the acquisition method of accounting which affected our results of operations in certain significant respects. The Sponsors' cost of acquiring the Company has been pushed down to establish a new accounting basis for the Company. Accordingly, the accompanying interim consolidated financial statements are presented for two periods, Predecessor and Successor, which relate to the accounting periods preceding and succeeding the completion of the Merger. The allocation of the total purchase price to the Company's net tangible and identifiable intangible assets was based on preliminary estimated fair values as of the Merger date, as described further in Note 4 to the Financial Statements. In addition to the transaction related expenses discussed further below, the following are reflected in our results of operations for the Successor period from February 8, 2013 to December 29, 2013:
The purchase accounting adjustment to inventory resulted in an increase in cost of products sold of approximately $383 million as those products were sold to customers during the period subsequent to the Merger.
Incremental amortization of approximately $34 million on the step-up in basis of definite-lived intangible assets which was included within cost of products sold.
Incremental interest expense of $226 million related to new borrowings under the Senior Credit Facilities and the Notes issued in a private offering, in connection with the Merger.
The purchase accounting adjustment to deferred pension costs resulted in a decrease in pension expense of approximately $17 million which was primarily reflected in cost of products sold.
The purchase accounting adjustment to deferred derivative gains related to foreign currency cash flow hedges resulted in an increase in cost of products sold of approximately $14 million.
We recognized a gain of $118 million on interest rate swap agreements entered into by Merger Subsidiary prior to the Merger to mitigate exposure to variable rate debt that was raised to finance the acquisition. These agreements were not designated as hedging instruments prior to the Merger date, and as such, we recorded the gain due to changes in fair value of these instruments, and separately reflected the gain in the accompanying statement of operations. As a result of the Merger and the transactions entered into in connection therewith, we have assumed the liabilities and obligations of Merger Subsidiary. As of the Merger date, these interest rate swaps were designated as cash flow hedges of the variable interest payments on the term notes issued in connection with the Merger, with changes in fair value of the derivatives reflected in other comprehensive income from that date forward.
Transaction Related Expenses. During the Successor period, the Company incurred $157.9 million in Merger related costs on a pretax basis, including $70.0 million consisting primarily of advisory fees, legal, accounting and other professional costs. The Company also incurred $87.9 million during the Successor period related to severance and compensation arrangements pursuant to existing agreements with certain former executives and employees in connection with the Merger. These amounts are separately reflected in the accompanying statement of operations for the Successor period.
Prior to consummation of the Merger, the Company incurred $112.2 million of Merger related costs, including $48.1 million resulting from the acceleration of expense for stock options, restricted stock units and other compensation plans pursuant to the existing change in control provisions of those plans, and $64.0 million of professional fees. These amounts are separately reflected in Merger related costs in the accompanying statement of operations for the Predecessor period. The Company also recorded a

13



loss from the extinguishment of debt of approximately $129.4 million for debt required to be repaid upon closing as a result of the change in control which is reflected in Other (expense) income, net, in the accompanying statement of operations for the Predecessor period.
Periods Presented
Successor -The consolidated financial statements as of December 29, 2013, and for the period from February 8, 2013 through December 29, 2013, include the accounts of Merger Subsidiary from inception on February 8, 2013 and the accounts of the Company subsequent to the closing of the Merger on June 7, 2013. The activity in the period February 8, 2013 to April 28, 2013 related primarily to the issuance of the Second Lien Senior Secured Notes due 2020 and recognition of associated issuance costs and interest expense. The cash was invested in a money market account until the completion of the Merger on June 7, 2013. See Note 10 for further details. The following represents the condensed financial information for Merger Subsidiary for the period February 8, 2013 to April 28, 2013 and as at April 28, 2013:

Hawk Acquisition Sub, Inc. (Successor)

Condensed Statement of Operations
For the Period from February 8, 2013 through April 28, 2013
 
February 8 - April 28, 2013
 
(In thousands)
Merger related costs
$
19,713

Operating loss
(19,713
)
Unrealized loss on derivative instrument
(65,294
)
Interest Expense, net
(10,743
)
Loss from continuing operations before income tax
(95,750
)
Benefit from income taxes
37,842

Net loss
$
(57,908
)


Hawk Acquisition Sub, Inc. (Successor)

Condensed Balance Sheet
As of April 28, 2013
 
April 28, 2013
 
(In thousands)
 Cash
$
3,011,750

 Other assets
125,231

 Total assets
$
3,136,981

 
 
 Notes payable
$
3,100,000

 Other liabilities
94,889

 Total liabilities
3,194,889

 Shareholder's deficit
(57,908
)
 Total liabilities and shareholder's deficit
$
3,136,981



Predecessor - the consolidated financial statements of the Company prior to the Merger on June 7, 2013.

Transition period - the combination of the Successor and the Predecessor period from April 29, 2013 to June 7, 2013.

Fiscal 2013 - the fiscal year from April 30, 2012 to April 28, 2013.

14




Fiscal 2012 - the fiscal year from April 28, 2011 to April 29, 2012.

Fiscal 2011 - the fiscal year from April 29, 2010 to April 27, 2011.

Executive Overview
The Company's total sales were $6.24 billion for the Successor period and $1.11 billion for the Predecessor period, compared to $7.44 billion for the eight months ended December 23, 2012 (based on the Company's former fiscal month end). The decline in sales was principally due to unfavorable foreign exchange translation rates which decreased sales by 1.8%, partially offset by an increase in volume of 0.8% as favorable volume in emerging markets coupled with 2.2% of incremental volume due to an extra week of sales in the Successor period to align to the new year end exceeded declines in developed markets. Volume in the Successor period was unfavorably impacted by category softness and reduced promotional pricing mainly in the U.S when compared to the prior year period and by one extra month of sales (approximating 0.5% of sales) being reported in Brazil in the prior year period as the subsidiary's fiscal reporting was conformed to the Company's fiscal period. Net pricing increased sales by 0.3%, driven by price increases in Brazil, Indonesia and U.S. Foodservice. Divestitures decreased sales by 0.4%.
In the Successor and Predecessor periods February 8, 2013 to December 29, 2013, and April 29, 2013 to June 7, 2013, respectively, gross profit, operating income and net income have been significantly impacted by Merger and restructuring related costs and expenses. In addition, for the Successor period, the effects of the new basis of accounting resulted in increased non-cash charges to cost of sales for the step up in inventory value, increased amortization expense associated with the fair value adjustments to intangible assets and the increased borrowings to fund the Merger resulted in higher interest costs compared to prior year quarter. See The Merger and The Results of Operation sections for further information on the Merger related costs and expenses and further analysis of our operating results for the quarter.

Transition Period Restructuring and Productivity Initiatives

During the transition period, the Company invested in restructuring and productivity initiatives as part of its ongoing cost reduction efforts with the goal of driving efficiencies and creating fiscal resources that will be reinvested into the Company's business as well as to accelerate overall productivity on a global scale. As of December 29, 2013, these initiatives have resulted in the reduction of approximately 3,400 corporate and field positions across the Company's global business segments as well as the closure and consolidation of manufacturing and corporate office facilities. Including charges incurred as of December 29, 2013, the Company currently estimates it will incur total charges of approximately $300 million related to severance benefits and other severance-related expenses related to the reduction in corporate and field positions and the ongoing annual cost savings is estimated to be approximately $250 million. The severance-related charges and cost savings assumptions that the Company expects to incur in connection with these work force reductions are subject to a number of assumptions and may differ from actual results.
On November 14, 2013, the Company announced the planned closure of 3 factories in the U.S. and Canada by the middle of calendar year 2014.  The number of employees expected to be impacted by these 3 plant closures and consolidation is approximately 1,350. The Company currently estimates it will incur total charges of approximately $63 million for severance benefits and other severance-related expenses related to these factory closures.  In addition the Company will recognize accelerated depreciation on assets to be disposed of. In the Successor period, the Company incurred an immaterial amount of severance benefits and other severance-related expenses, and $55.6 million in accelerated depreciation related to these factory closures. The ongoing annual cost savings is estimated to be approximately $55 million. The severance-related charges and cost savings assumptions that the Company expects to incur in connection with these factory workforce reductions and factory closures are subject to a number of assumptions and may differ from actual results. The Company may also incur other charges not currently contemplated due to events that may occur as a result of, or related to, these cost reductions.

The Company recorded pre-tax costs related to these productivity initiatives of $410 million in the Successor period and $6 million in the Predecessor period which were recorded in the Non-Operating segment. See Item 8 – “Consolidated Financial Statements and Supplementary Data – Note 7 – Restructuring and Productivity Initiatives” for additional information on these productivity initiatives. There were no such charges in the eight months ended December 23, 2012.

15





Fiscal 2012 Productivity Initiatives

On May 26, 2011, the Company announced that it would invest in productivity initiatives during Fiscal 2012 designed to increase manufacturing effectiveness and efficiency as well as accelerate overall productivity on a global scale. The Company recorded costs related to these productivity initiatives of $205.4 million pre-tax during the fiscal year ended April 29, 2012, all of which were reported in the Non-Operating segment. In addition, after-tax charges of $18.9 million were recorded in losses from discontinued operations for the fiscal year ended April 29, 2012 . See Note 7, "Restructuring and Productivity Initiatives" in Item 8- "Financial Statements and Supplementary Data" and the "Liquidity and Financial Position" section below for additional information on these productivity initiatives.

Discontinued Operations
In the third quarter of Fiscal 2013, the Company's Board of Directors approved management's plan to sell Shanghai LongFong Foods ("LongFong"), a maker of frozen products in China which was previously reported in the Asia/Pacific segment. During the fourth quarter of Fiscal 2013, the Company secured an agreement with a buyer and during the Successor period, the sale was completed, resulting in an insignificant pre-tax and after-tax loss which was recorded in discontinued operations in the Successor period. As a result, LongFong's net assets were classified as held for sale and the Company adjusted the carrying value to estimated fair value, recording a $36.0 million pre-tax and after-tax non-cash goodwill impairment charge to discontinued operations during the third quarter of Fiscal 2013. The net assets held for sale related to LongFong as of April 28, 2013 were reported in Other current assets, Other non-current assets, Other accrued liabilities and Other non-current liabilities on the consolidated balance sheet as of April 28, 2013 as they were not material for separate balance sheet presentation.
During the first quarter of Fiscal 2013, the Company completed the sale of its U.S. Foodservice frozen desserts business, resulting in a $32.7 million pre-tax ($21.1 million after-tax) loss which has been recorded in discontinued operations.
The operating results related to these businesses have been included in discontinued operations in the Company's consolidated statements of income for all periods presented. The following table presents summarized operating results for these discontinued operations:
 
Successor
Predecessor
 
February 8 - December 29, 2013
April 29 - June 7, 2013
April 28,
2013
FY 2013
April 29,
2012
FY 2012
April 27,
2011
FY 2011
 
(In millions)
Sales
$
2.9

$
1.2

$
47.7

$
141.5

$
148.0

Net after-tax losses
$
(5.6
)
$
(1.3
)
$
(17.6
)
$
(51.2
)
$
(39.6
)
Tax benefit on losses
$

$

$
0.6

$
1.4

$
2.6



Results of Continuing Operations

On October 21, 2013, the Company's Board of Directors approved a change in the Company's fiscal year end from the Sunday closest to April 30 to the Sunday closest to December 31. As a result of this change, the consolidated financial statements include presentation of the Successor period from February 8, 2013 through December 29, 2013 and the Predecessor period from April 29, 2013 through June 7, 2013. As a result, the following discussion compares our results of operations for the 35 week transition period to our results of operations for the eight months, or 34 weeks, ended December 23, 2012.
On March 14, 2012 the Company's Board of Directors authorized a change in the Company's fiscal year end from the Wednesday nearest April 30 to the Sunday nearest April 30. The change in the fiscal year end resulted in Fiscal 2012 changing from a 53 week year to a 52 1/2 week year and was intended to better align the Company's financial reporting period with its business partners and production schedules. This change did not have a material impact on the Company's financial statements.
Throughout this discussion, data for all periods except as of and for the eight months ended December 23, 2012, are derived from our audited consolidated financial statements, which appear in Item 8 – “Consolidated financial Statements and Supplementary Data” of this annual report on form 10-K. All data as of and for the eight months ended December 23, 2012, are derived from our

16



unaudited consolidated financial information, which is presented in the table below and in Item 8 – “Consolidated Financial Statements and Supplementary Data – Note 22 – Change in Fiscal Year End”.
 
Successor
 
Predecessor
 
February 8 - December 29, 2013
 
April 29 - June 7, 2013
 
April 30 - December 23, 2012
 
(29 Weeks)
 
(6 Weeks)
 
(34 Weeks)
 
 
 
 
 
(Unaudited)
 
(In thousands)
Sales
$
6,239,562

 
$
1,112,872

 
$
7,438,060

Cost of products sold
4,587,791

 
729,537

 
4,746,057

Gross profit
1,651,771

 
383,335

 
2,692,003

Selling, general and administrative expenses
1,501,807

 
243,364

 
1,606,902

Merger related costs
157,938

 
112,188

 

Operating (loss)/income
(7,974
)
 
27,783

 
1,085,101

Interest income
13,071

 
2,878

 
20,459

Interest expense
408,503

 
35,350

 
188,544

Unrealized gain on derivative instruments
117,934

 

 

Other expense, net
(12,233
)
 
(125,638
)
 
(5,216
)
(Loss)/income from continuing operations before income taxes
(297,705
)
 
(130,327
)
 
911,800

(Benefit from)/provision for income taxes
(231,623
)
 
61,097

 
142,528

(Loss)/income from continuing operations
(66,082
)
 
(191,424
)
 
769,272

Loss from discontinued operations, net of tax
(5,636
)
 
(1,273
)
 
(36,322
)
Net (loss)/income
(71,718
)
 
(192,697
)
 
732,950

Less: Net income attributable to the noncontrolling interest
5,303

 
2,874

 
10,619

Net (loss)/income attributable to H. J. Heinz Company
$
(77,021
)
 
$
(195,571
)
 
$
722,331

The Company’s revenues are generated via the sale of products in the following categories:
 
Successor
 
Predecessor
 
February 8 - December 29, 2013
 
April 29 - June 7, 2013
 
April 30 - December 23, 2012
 
April 28, 2013
 
April 29, 2012
 
April 27, 2011
 
(29 Weeks)
 
(6 Weeks)
 
(34 weeks)
 
(52 Weeks)
 
(52 1/2 Weeks)
 
(52 Weeks)
 
(In thousands)
Ketchup and Sauces
$
3,081,347

 
$
533,932

 
$
3,476,252

 
$
5,375,788

 
$
5,232,607

 
$
4,607,326

Meals and Snacks
2,185,831

 
359,412

 
2,736,800

 
4,240,808

 
4,337,995

 
4,134,836

Infant/Nutrition
624,359

 
118,528

 
760,670

 
1,189,015

 
1,232,248

 
1,175,438

Other
348,025

 
101,000

 
464,338

 
723,275

 
704,722

 
641,036

Total
$
6,239,562

 
$
1,112,872

 
$
7,438,060

 
$
11,528,886

 
$
11,507,572

 
$
10,558,636


Company Results - The period from February 8, 2013 through December 29, 2013 (Successor) and the period from April 29, 2013 through June 7, 2013 (Predecessor) compared to Eight Months Ended December 23, 2012

Sales were $6.24 billion for the Successor period and $1.11 billion for the Predecessor period, respectively, compared to $7.44 billion for the eight months ended December 23, 2012, a decrease of $86 million or 1.2% period over period. Volume increased 0.8%, as favorable volume in emerging markets coupled with an extra week of sales in the Successor period to align to the new year end (approximating 2.2% of incremental volume) exceeded declines in developed markets. Volume in the current eight month period was unfavorably impacted by reduced promotional pricing mainly in the U.S. when compared to the prior year period and by one extra month of sales (approximating 0.5% of sales) being reported in Brazil in the prior year period as the subsidiary's fiscal reporting was conformed to the Company's fiscal period as the subsidiary no longer required an earlier closing date to facilitate timely reporting. Net pricing increased sales by 0.3%, driven by price increases in Brazil, Indonesia and U.S. Foodservice

17



partially offset by price decreases in Australia, New Zealand, Italy and Venezuela. Divestitures decreased sales by 0.4% and unfavorable foreign exchange translation rates decreased sales by 1.8%.

Gross profit decreased $657 million or 24.4% to $1.65 billion for the Successor period and $383 million for the Predecessor, respectively, from a gross profit of $2.69 billion for the eight months ended December 23, 2012, and gross profit margin decreased to 27.7% from 36.2%. These decreases are primarily related to higher cost of products sold in the Successor period associated with the purchase accounting adjustments related to the step up in value of inventory ($383 million) and incremental amortization of the preliminary step-up in basis of definite lived intangible assets ($34 million). Gross profit was also negatively impacted by restructuring and productivity initiatives of $169 million for the Successor period and $6 million for the Predecessor period, respectively. The restructuring and productivity related charges are recorded in the non-operating segment.

Selling, general and administrative expenses ("SG&A") increased $138 million, or 8.6% to $1.50 billion for the Successor period and $243 million for the Predecessor period, and increased as a percentage of sales to 23.7% from 21.6% period over period. The increase in SG&A is attributable to severance related to the restructuring and productivity initiatives of $242 million.

Merger related costs in the Successor period include $70 million consisting primarily of advisory fees, legal, accounting and other professional costs and $87.9 million related to severance and compensation arrangements pursuant to existing agreements with certain former executives and employees in connection with the Merger. In the Predecessor period, Merger related costs include $48 million resulting from the acceleration of stock options, restricted stock units and other compensation plans, and $64 million of professional fees.

Operating income decreased $1.07 billion to an operating loss of $8 million for the Successor period and an operating income of $28 million for the Predecessor period, respectively, reflecting the decrease in gross profit discussed above and the impact of the merger related charges.

Net interest expense increased $260 million, to $395 million for the Successor period and $32 million for the Predecessor period, respectively, reflecting higher average debt balances resulting from the Merger. Included in the Successor period is $25 million of interest expense incurred by Merger Subsidiary prior to the consummation of the Merger. Other income (expense), net, decreased $133 million, to an expense of $12 million for the Successor period and expense of $126 million for the Predecessor period, respectively, primarily related to the costs for early extinguishment of debt related to the Merger.

Prior to the Merger, Merger Subsidiary entered into interest rate swap agreements to mitigate exposure to variable rate debt that was raised to finance the acquisition. These agreements were not designated as hedging instruments prior to the Merger date, and as such, we recorded a gain of $118 million in the Successor period due to changes in fair value of these instruments, and separately reflected the gain in the accompanying statement of operations. As a result of the Merger and the transactions entered into in connection therewith, we have assumed the liabilities and obligations of Merger Subsidiary.
For the Successor period the Company recorded a tax benefit of $232 million, or 77.8% of pretax loss. For the Predecessor period the Company recorded a tax expense of $61 million, or (46.9%) of pretax loss. In the eight months ended December 23, 2012, the Company recorded a tax expense of $143 million, or 15.6% of pretax income.
The tax benefit in the Successor period included a benefit of $107 million related to the impact on deferred taxes of a 300 basis point statutory tax rate reduction in the United Kingdom which was enacted during July 2013, and a favorable jurisdictional income mix. The benefit of the statutory tax rate reduction in the United Kingdom was favorably impacted by the increase in deferred tax liabilities recorded in purchase accounting for the Merger.
The tax provision for the Predecessor period April 29, 2013 to June 7, 2013 was principally caused by the effect of repatriation costs of approximately $100 million for earnings of foreign subsidiaries distributed during the period and the effect of current period nondeductible Merger related costs.
The tax provision for the eight months ended December 23, 2012 included the $63 million tax benefit that occurred as a result of an increase in the tax basis of both fixed and intangible assets resulting from a tax-free reorganization in a foreign jurisdiction, a $13 million tax benefit from an intangible asset revaluation for tax purposes elected by a foreign subsidiary, and a benefit of $10 million related to a 200 basis point statutory tax rate reduction also in the United Kingdom.
The net loss from continuing operations attributable to H. J. Heinz Company was $71 million for the Successor period and $194 million for the Predecessor period, compared to net income of $759 million in the eight months ended December 23, 2012.

18



OPERATING RESULTS BY BUSINESS SEGMENT

The following discussion compares the operating results by business segment for the period from February 8, 2013 through December 29, 2013 (Successor) and the period from April 29, 2013 through June 7, 2013 (Predecessor) compared to the eight months ended December 23, 2012. All data for the eight months ended December 23, 2012, are derived from our unaudited consolidated financial information, which is presented in the table below:

 
Successor
Predecessor
 
Successor
Predecessor
 
Successor
Predecessor
 
February 8 - December 29, 2013
April 29 - June 7, 2013
 
February 8 - December 29, 2013
April 29 - June 7, 2013
 
February 8 - December 29, 2013
April 29 - June 7, 2013
 
Net External Sales
 
Gross Profit
 
Operating Income (Loss)
 
(In thousands)
North American Consumer Products
$
1,669,924

$
307,971

 
$
547,009

$
123,357

 
$
269,642

$
65,459

Europe
1,829,607

284,657

 
575,231

98,220

 
195,235

32,918

Asia/Pacific
1,328,488

272,116

 
290,385

92,895

 
11,833

37,616

U.S. Foodservice
772,598

135,688

 
192,604

38,579

 
84,273

15,531

Rest of World
638,945

112,440

 
215,107

35,673

 
74,238

10,560

Non-Operating


 
(168,565
)
(5,389
)
 
(643,195
)
(134,301
)
Consolidated Totals
$
6,239,562

$
1,112,872

 
$
1,651,771

$
383,335

 
$
(7,974
)
$
27,783


 
Predecessor
 
April 30 - December 23, 2012
 
Net External Sales
Gross Profit
Operating Income (Loss)
 
(In thousands)
North American Consumer Products
$
2,047,516

$
855,759

$
505,418

Europe
2,124,441

815,198

374,519

Asia/Pacific
1,647,494

517,640

169,432

U.S. Foodservice
871,974

244,772

101,162

Rest of World
746,635

255,112

82,025

Non-Operating

3,522

(147,455
)
Consolidated Totals
$
7,438,060

$
2,692,003

$
1,085,101


North American Consumer Products

Sales of the North American Consumer Products segment decreased $70 million, or 3.4%, to $1.67 billion for the Successor period and $308 million for the Predecessor period, respectively. Lower net price of 0.7% reflects increased promotional activity on frozen appetizers and snacks, frozen potatoes and frozen meals and sides, partially offset by higher pricing from reduced ketchup promotions in the U.S. Volume was down 1.8% reflecting category softness in frozen potatoes and frozen nutritional entrees, along with a reduction in Heinz® ketchup promotional activity, partially offset by 2.6% of incremental volume due to the extra week of sales to align to the new year end. Unfavorable Canadian exchange translation rates decreased sales 0.8%.

Gross profit decreased $185 million, or 21.7%, to $547 million for the Successor period and $123 million for the Predecessor period, and the gross profit margin decreased to 33.9% from 41.8%. These decreases are primarily related to higher cost of products sold associated with the preliminary purchase accounting adjustments related to the step up in value of inventory, and lower volume. Operating income decreased $170 million to $270 million for the Successor period and $65 million for the Predecessor period reflecting the decline in gross profit, partially offset by lower SG&A primarily related to the current year restructuring initiatives.
   

19



Europe

Heinz Europe sales decreased $10 million, or 0.5%, to $1.83 billion for the Successor period and $285 million for the Predecessor period. Volume was up 0.2% as 2.0% of incremental volume due to the extra week of sales to align to the new year end as well as strong performance in Russia and Germany was largely offset by soft category sales in the U.K., Italy and The Netherlands. Volume in the U.K. was also impacted by the strategic decision to realign promotional activity and by the timing of sales related to the Project Keystone(1) go-live in May 2013. Net pricing decreased 0.4% primarily reflecting higher pricing in Benelux and Eastern Europe which was more than offset by pricing declines in Italy and Russia. The divestitures of a small soup business in Germany and a non-core product line in Russia decreased sales 1.4%. Favorable exchange translation rates increased sales 1.1%.

Gross profit decreased $142 million, or 17.4%, to $575 million for the Successor period and $98 million for the Predecessor period, while the gross profit margin decreased to 31.9% from 38.4%. These decreases are primarily related to higher cost of products sold associated with the preliminary purchase accounting adjustments related to the step up in value of inventory. Operating income decreased $146 million to $195 million for the Successor period and operating income of $33 million for the Predecessor period, reflecting the decline in gross profit and higher SG&A expenses primarily related to increased marketing spend in Russia and Italy.

(1) Project Keystone is a multi-year global program designed to drive productivity and make Heinz much more competitive by adding capabilities, harmonizing global processes and standardizing our systems through SAP

Asia/Pacific

Heinz Asia/Pacific sales decreased $47 million, or 2.8%, to $1.33 billion for the Successor period and $272 million for the Predecessor period, as unfavorable exchange translation rates decreased sales by 6.3%. Volume increased 3.1% largely a result of the 1.7% of incremental volume due to the extra week of sales to align to the new year end and continued strong performance of Master® branded sauces in China and Heinz branded infant feeding products in China as well as frozen products in Japan and ABC® sauces in Indonesia. These increases were partially offset by declines in Glucon D® and Complan® branded products in India. Pricing increased 0.4%, as price increases on ABC® sauces in Indonesia and Master® branded sauces in China were offset by higher promotion spending in Australia and New Zealand.

Gross profit decreased $134 million, or 26.0%, to $290 million for the Successor period and $93 million for the Predecessor period, while the gross profit margin decreased to 23.9% from 31.4%. These decreases are related to higher cost of products sold associated with the preliminary purchase accounting adjustments related to the step up in value of inventory, as well as, unfavorable foreign exchange translation rates. Operating income decreased $120 million to $12 million for the Successor period and $38 million for the Predecessor period, reflecting the decline in gross profit, partially offset by lower SG&A expense across the region including lower marketing spend in India. SG&A in the prior year benefited from a gain on the sale of excess land in Indonesia.

U.S. Foodservice

Sales of the U.S. Foodservice segment increased $36 million, or 4.2%, to $773 million for the Successor period and $136 million for the Predecessor period. Pricing increased sales 2.0%, largely due to price increases on ketchup and other sauces and condiments partially offset by pricing decreases on frozen soup. Volume increased by 2.1% largely a result of the 3.0% of incremental volume from the extra week of sales to align to the new year end and increases primarily in ketchup and other sauces and condiments partially offset by volume declines in frozen soup.

Gross profit decreased $14 million, or 5.6%, to $193 million for the Successor period and $39 million for the Predecessor period and the gross profit margin decreased to 25.5% from 28.1%. These decreases are primarily related to higher cost of products sold associated with the preliminary purchase accounting adjustments related to the step up in value of inventory partially offset by increased volume and pricing. Operating income decreased $1 million to $84 million for the Successor period and $16 million for the Predecessor period reflecting the decline in gross profit offset by lower SG&A primarily related to the current year restructuring initiatives.

Rest of World

Sales for Rest of World increased $5 million, or 0.6%, to $639 million for the Successor period and $112 million for the Predecessor period. Volume increased 3.3% largely as a result of 1.8% of incremental volume due to the extra week of sales to align to the new year end and volume gains across the segment which were partially offset by the one extra month of sales reported in Brazil in the prior year as discussed above, the impact of which was split evenly between the Ketchup & Sauces and Meals & Snacks categories and mainly impacted Quero® branded sales. Pricing increased sales by 2.6%, largely due to price increases on

20



Quero® branded products in Brazil, partially offset by price decreases in Venezuela. (See the “Venezuela- Foreign Currency and Inflation” section below for further discussion on inflation in Venezuela.) Foreign exchange translation rates decreased sales 5.3%.

Gross profit decreased $4 million, or 1.7%, to $215 million for the Successor period and $36 million for the Predecessor period while the gross profit margin decreased to 33.4% from 34.2%. The decrease in gross profit is primarily related to higher cost of products sold associated with the preliminary purchase accounting adjustments related to the step up in value of inventory and the lower volume in Brazil resulting from the extra month of results in the prior year period, partially offset by reduced cost of products sold in Mexico following the switch to local production, expansion of higher margin Complan® branded products in Nigeria, and the favorable impact of the higher pricing. Operating income increased $3 million to $74 million for the Successor period and $11 million for the Predecessor period, primarily reflecting the decline in gross profit which was more than offset by lower SG&A primarily related to the current year restructuring initiatives.
 
Fiscal 2013 Company Results - Fiscal Year Ended April 28, 2013 compared to Fiscal Year Ended April 29, 2012

Sales for Fiscal 2013 increased $21 million, or 0.2%, to $11.53 billion. Volume increased 1.0%, as volume gains in emerging markets were partially offset by declines in the U.S., Continental Europe, Australia and Italy. Emerging markets volume included an extra month of results for Brazil, which was more than offset by the Company's decision to exit the T.G.I Friday's® frozen meals business in the U.S. Emerging markets, the Company's top 15 brands and global ketchup continued to be the Company's primary growth drivers, with organic sales growth of 16.8%, 3.6% and 4.6%, respectively (reported sales growth of 14.3%, 0.8%, and 2.8%, respectively). Net pricing increased sales by 2.1%, driven by price increases across the emerging markets, as well as in Continental Europe and U.S. Foodservice. Divestitures decreased sales by 0.3%, and unfavorable foreign exchange rates decreased sales by 2.5%.

Gross profit increased $201 million, or 5.0%, to $4.20 billion, and gross profit margin increased 170 basis points to 36.4%. Current year gross profit includes the previously discussed $3.5 million charge related to the closure of a factory in South Africa. Excluding this charge and charges for productivity initiatives in Fiscal 2012, gross profit margin increased 60 basis points, and gross profit increased $74 million, or 1.8%, as the benefits from higher pricing, volume and productivity initiatives were offset by a $104 million unfavorable impact from foreign exchange and higher commodity costs.

SG&A increased $41 million, or 1.7%, to $2.53 billion, and increased as a percentage of sales to 22.0% from 21.7%. Current year SG&A includes the previously discussed special items of $12 million for the Foodstar earn-out settlement and $45 million in transaction-related costs associated with the Merger Agreement. Excluding these current year special items and charges for productivity initiatives in Fiscal 2012, SG&A increased $60 million, or 2.5%, to $2.48 billion and increased as a percentage of sales to 21.5% from 21.0%. The increase in aggregate spending reflects higher marketing spending, incremental investments in Project Keystone, and strategic investments to drive growth in emerging markets partially offset by a $66 million impact from foreign exchange translation rates, reduced pension expense and effective cost management in developed markets.

Operating income increased $159 million, or 10.6%, to $1.66 billion. Excluding the special items in the current year and charges for productivity initiatives in Fiscal 2012, operating income increased $14 million, or 0.8%, to $1.72 billion.

Net interest expense decreased $3 million, to $256 million, reflecting a $9 million decrease in interest expense and a $7 million decrease in interest income, both of which are driven by lower interest rates. Other expense, net, increased $54 million, to $62 million in the current year, primarily due to a $43 million currency translation loss previously discussed recorded during the fourth quarter of Fiscal 2013 resulting from the devaluation of the Venezuelan currency relative to the U.S. dollar, changing the official exchange rate from 4.30 to 6.30. The remaining increase is due to other currency losses this year compared to currency gains last year.

The effective tax rate for Fiscal 2013 decreased to 18.0% from 19.8% in the prior year on a reported basis. Excluding special items in the current year and productivity initiatives last year, the effective rate was 18.2% compared to 21.3% last year. The decrease in the effective tax rate is primarily the result of increased benefits from the revaluation of the tax basis of certain foreign assets, which includes our Fiscal 2013 reorganization, and reduced charges for the repatriation of current year foreign earnings. See below in "Liquidity and Financial Position" for further explanation. These amounts were partially offset by lower current year benefits from tax free interest and tax on income of foreign subsidiaries. The prior year also contained a benefit from the resolution of a foreign tax case. Both periods contained a benefit of approximately $15 million from the reversal of an uncertain tax position liability due to the expiration of the statute of limitations in a foreign tax jurisdiction as well as benefits in each year related to 200 basis point statutory tax rate reductions in the United Kingdom.


21



Income from continuing operations attributable to H. J. Heinz Company was $1.09 billion, an increase of 11.6% compared to $974 million in the prior year on a reported basis. Excluding special items(2), income from continuing operations was $1.17 billion, an increase of 4.5% compared to $1.12 billion in the prior year excluding charges for productivity initiatives.

The impact of fluctuating translation exchange rates in Fiscal 2013 has had a relatively consistent impact on all components of operating income on the consolidated statement of income.

(2)
All Fiscal 2013 results excluding special items are non-GAAP measures used for management reporting and incentive compensation purposes. See “Non-GAAP Measures” section below for the reconciliation of all Fiscal 2013 non-GAAP measures to the reported GAAP measures.

FISCAL YEAR 2013 OPERATING RESULTS BY BUSINESS SEGMENT

North American Consumer Products

Sales of the North American Consumer Products segment decreased $46 million, or 1.4%, to $3.20 billion. Volume decreased 1.1% despite volume improvements in Heinz® ketchup and mayonnaise, Ore-Ida® and non-branded frozen potatoes, Classico® pasta sauces and Delimex® frozen snacks. These volume improvements were more than offset by the planned exit of T.G.I Friday's® frozen meals and volume declines in Smart Ones® frozen products, reflecting category softness and the discontinuation of bagged meals, and in T.G.I Friday's® frozen snacks. Higher net price of 0.6% reflects price increases in Heinz® ketchup and Smart Ones® frozen products, reflecting reduced promotions, partially offset by increased promotions on Ore-Ida® frozen potatoes. Sales were also unfavorably impacted by 0.7% from the Company's strategic decision to exit the Boston Market® license. Unfavorable Canadian exchange translation rates decreased sales 0.2%

Gross profit increased $7 million, or 0.6%, to $1.33 billion, and the gross profit margin increased to 41.7% from 40.9%. Gross margin increased as productivity improvements and slightly higher pricing more than offset increased commodity costs. Operating income decreased $21 million, or 2.6% to $791 million, largely due to higher marketing (+9%) and increased selling and distribution expense ("S&D") and general and administrative expenses ('"G&A") in Canada related to the implementation of Project Keystone.

Europe

Heinz Europe sales decreased $127 million, or 3.7%, to $3.31 billion, reflecting a 3.4% decline from foreign exchange translation rates. Net pricing increased 0.9%, driven by lower promotions across Continental Europe and on Aunt Bessie's® frozen potatoes in the U.K. and higher pricing on Heinz® ketchup in Russia, partially offset by higher promotions on Heinz® soup and beans in the U.K. Volume decreased 0.8%, as strong performance in Heinz® ketchup, our Russian business and Heinz® soup in the U.K. were more than offset by volume declines in Heinz® beans and pasta meals and frozen meals in the U.K. and the impact from weak economies and soft category sales in Italy and Continental Europe. The divestitures of two small businesses decreased sales 0.5%.

Gross profit decreased $44 million, or 3.3%, to $1.28 billion, while the gross profit margin increased slightly to 38.5% from 38.3%. The gross margin improvement reflects higher pricing, productivity improvements and favorable cross currency rate movements related to the sourcing of finished goods across the European supply chain, partially offset by higher commodity costs. The $44 million decrease in gross profit was due to the impact of unfavorable foreign exchange translation rates. Operating income decreased $16 million, or 2.6%, to $593 million, as lower G&A costs reflecting reduced pension and incentive compensation expense were more than offset by unfavorable foreign exchange translation rates and increased investments in our emerging markets businesses.

Asia/Pacific

Heinz Asia/Pacific sales increased $33 million, or 1.3%, to $2.53 billion, despite unfavorable exchange translation rates decreasing sales by 3.0%. Volume increased 2.7%, largely a result of growth in ABC® products in Indonesia, Glucon D® and Nycil® branded products in India resulting from an excellent summer season and increased marketing, strong performance in Japan and continued strong performance of Heinz® and Master® branded sauces in China. These increases were partially offset by declines in soup and infant feeding in Australia and Complan® nutritional beverages in India. Pricing increased 1.6%, due to ABC® products in Indonesia, Complan® nutritional beverages in India and Master® branded sauces in China, partially offset by higher promotional spending in Australia.

Despite unfavorable foreign exchange translation rates, gross profit increased $48 million, or 6.3%, to $805 million, and the gross profit margin increased to 31.8% from 30.3%. The higher gross margin reflects productivity improvements and higher pricing, partially offset by higher commodity costs, particularly sugar costs in Indonesia. SG&A increased as investments in

22



marketing and improved capabilities in our emerging markets businesses were partially offset by foreign exchange translation rates and a gain in the current year on the sale of excess land in Indonesia. Operating income increased by $31 million, or 13.3%, to $266 million. Australia's operating income improved this year as a result of savings from last year's productivity initiatives.

U.S. Foodservice

Sales of the U.S. Foodservice segment increased $25 million, or 1.9%, to $1.37 billion. Pricing increased sales 2.7%, largely due to price increases across this segment's product portfolio to offset commodity cost increases. Volume decreased by 0.8%, as improvements in sauces were offset by declines in frozen soup and ketchup.

Gross profit increased $16 million, or 4.2%, to $406 million, and the gross profit margin increased to 29.6% from 29.0%, as higher pricing more than offset increases in manufacturing and commodity costs. Operating income increased $16 million, or 9.6%, to $186 million, which was primarily due to higher gross profit.

Rest of World

Sales for Rest of World increased $137 million, or 14.0%, to $1.12 billion. Volume increased 12.3% due primarily to increases in both Quero® and Heinz® branded products in Brazil, Heinz® baby food in Mexico reflecting the launch of pouch packaging, and Complan® nutritional beverages in the Middle East. Approximately 60% of the volume gains in Brazil are a result of the favorable impacts from marketing and promotional activities, increased distribution and the successful introduction of Heinz® branded ketchup into this market. Approximately one-third of the volume gains in this segment and 40% of Brazil's volume gains are a result of one extra month of sales reported in Brazil in the current year, as the business no longer requires an earlier closing date to facilitate timely reporting. This extra month impact was split evenly between the Ketchup & Sauces and Meals & Snacks categories and mainly impacted Quero® branded sales. Pricing across the region increased sales by 11.3%, largely due to price increases on Quero® branded products in Brazil as well as increases in Venezuela taken to mitigate inflation. Venezuela's pricing was still significantly favorable despite the unfavorable pricing impact of the devaluation of the Venezuelan currency relative to the U.S. dollar that occurred at the beginning of the fourth quarter of this year. (See the “Venezuela- Foreign Currency and Inflation” section below for further discussion on inflation in Venezuela.) Foreign exchange translation rates decreased sales 9.6%.

Gross profit increased $46 million, or 14.0%, to $373 million, due to strong results in Brazil which are a result of significant growth in this business and the extra month of results in the current year, partially offset by unfavorable foreign exchange translation rates and the impact from the Venezuelan currency devaluation. Gross profit margin increased slightly to 33.5% from 33.4% as higher pricing and productivity improvements were offset by increased commodity and other manufacturing costs particularly in Venezuela and Brazil. Operating income increased $8 million, or 7.2%, to $113 million, due to strong performance in Brazil.

Fiscal 2012 Company Results - Fiscal Year Ended April 29, 2012 compared to Fiscal Year Ended April 27, 2011

Sales for Fiscal 2012 increased $949 million, or 9.0%, to $11.51 billion. Net pricing increased sales by 3.7%, driven by price increases across the Company, particularly in the U.S., Latin America, U.K. and China. Volume decreased 0.1%, as favorable volume in emerging markets, Japan and Germany were more than offset by declines in the U.S., Australia and Italy. Emerging markets, global ketchup and the Company's top 15 brands continued to be the most significant growth drivers, with organic sales growth of 17.6%, 8.0%, and 5.0%, respectively (43.1%, 9.7% and 12.3%, respectively, reported). Acquisitions, net of divestitures, increased sales by 3.6%. Foreign exchange translation rates increased sales by 1.8%.

Gross profit increased $50 million, or 1.3%, to $3.99 billion however, the gross profit margin decreased 270 basis points to 34.7%. Excluding charges for productivity initiatives, gross profit increased $180 million, or 4.6%, to $4.12 billion, largely due to higher pricing, acquisitions and a $59 million favorable impact from foreign exchange, partially offset by lower volume and commodity cost inflation. Gross profit margin excluding charges for productivity initiatives reflected industry-wide price and cost pressure and decreased 160 basis points to 35.8%, resulting from higher commodity and other costs, the impact of acquisitions and unfavorable sales mix, partially offset by higher pricing and productivity improvements.

SG&A increased $236 million, or 10.4% to $2.49 billion. Excluding charges for productivity initiatives, SG&A increased $160 million, or 7.1% to $2.42 billion, and decreased as a percentage of sales to 21.0% versus 21.4% last year. This increase in SG&A reflects a $36 million unfavorable impact from foreign exchange translation rates, as well as increases from acquisitions, higher marketing spending and incremental investments in Project Keystone. In addition, S&D was unfavorably impacted by higher fuel prices, particularly in the U.S., and G&A were higher as a result of strategic investments to drive growth in emerging markets, partially offset by effective cost management in developed markets and lower incentive compensation expense. SG&A, excluding marketing and charges for productivity initiatives, decreased as percentage of sales by 40 basis points, to 17.0%.


23



Operating income decreased $185 million, or 11.0%, to $1.50 billion. Excluding charges for productivity initiatives, operating income was up $20 million, or 1.2%, to $1.71 billion.

Net interest expense increased $8 million, to $258 million, reflecting a $20 million increase in interest expense, partially offset by a $12 million increase in interest income. The increase in interest income is mainly due to earnings on short-term investments and the increase in interest expense is largely due to interest rate mix in the Company's debt portfolio and acquisitions made in Fiscal 2011. Other expenses, net, decreased $13 million, to $8 million, primarily due to currency gains in Fiscal 2012 compared to currency losses in Fiscal 2011.

The effective tax rate for Fiscal 2012 was 19.8%. Excluding charges for productivity initiatives, the effective tax rate was 21.3% in Fiscal 2012 compared to 26.2% in Fiscal 2011. The decrease in the effective tax rate is primarily the result of the increased benefits from the revaluation of the tax basis of foreign assets, the reversal of an uncertain tax position liability due to the expiration of the statute of limitations in a foreign tax jurisdiction, the beneficial resolution of a foreign tax case, and lower tax on the income of foreign subsidiaries primarily resulting from a statutory tax rate reduction in the U.K. These benefits were partially offset by the Fiscal 2012 expense for changes in valuation allowances.

Income from continuing operations attributable to H. J. Heinz Company was $974 million, a decrease of 5.3%. Excluding charges for productivity initiatives(3), income from continuing operations attributable to H. J. Heinz Company was $1.12 billion compared to $1.03 billion in Fiscal 2011, an increase of 8.7%. This increase was largely due to higher sales and a lower effective tax rate, partially offset by a lower gross margin and investments in marketing, emerging markets capabilities and Project Keystone.

The impact of fluctuating translation exchange rates in Fiscal 2012 has had a relatively consistent impact on all components of operating income on the consolidated statement of income.

(3)
All Fiscal 2012 results excluding charges for productivity initiatives are non-GAAP measures used for management reporting and incentive compensation purposes. See “Non-GAAP Measures” section below for the reconciliation of all Fiscal 2012 non-GAAP measures to the reported GAAP measures.

FISCAL YEAR 2012 OPERATING RESULTS BY BUSINESS SEGMENT

North American Consumer Products

Sales of the North American Consumer Products segment decreased $24 million, or 0.7%, to $3.24 billion. Higher net price of 2.8% reflects price increases across the leading brands and reduced trade promotions. Despite volume gains from new product launches, overall volume declined 2.3% across most of our key brands reflecting reduced promotional activity and the impact of price increases. Sales were also unfavorably impacted by 1.6% from the Company's strategic decision to exit the Boston Market® license effective July 2011. Favorable Canadian exchange translation rates increased sales 0.3%.

Gross profit decreased $51 million, or 3.7%, to $1.32 billion, and the gross profit margin decreased to 40.9% from 42.1%. Gross profit declined as higher pricing and productivity improvements were more than offset by increased commodity and fuel costs, lower volume and the impact from the exit of the Boston Market® license. The decline in gross margin is due to higher commodity costs and unfavorable sales mix. Operating income decreased $21 million, or 2.5% to $812 million, as the decline in gross profit was partially offset by a decrease in G&A reflecting effective cost management, lower incentive compensation expenses and decreased S&D largely due to lower volume.

Europe

Heinz Europe sales increased $204 million, or 6.3%, to $3.44 billion. Net pricing increased 3.7%, driven by price increases across Europe and reduced promotions in the U.K. Volume increased by 0.6% as growth in ketchup across Europe, soup in the U.K., sauces in Germany and Heinz® branded sauces in Russia were offset by declines in Italian infant nutrition and frozen products in the U.K. The Italian infant nutrition business was unfavorably impacted by weakness in the Italian economy and corresponding softness in the category. Favorable foreign exchange translation rates increased sales by 1.9%.

Gross profit increased $52 million, or 4.1%, to $1.32 billion, while the gross profit margin decreased to 38.3% from 39.1%. The $52 million increase in gross profit is due to favorable net pricing, increased volume and foreign exchange translation rates. The decrease in the gross margin reflects the benefits from higher pricing and productivity improvements which were more than offset by higher commodity costs, unfavorable sales mix and a Fiscal 2011 gain on the sale of distribution rights on Amoy® products to ethnic channels in the U.K. Operating income increased $28 million, or 4.8%, to $609 million, due to higher pricing, increased volume and favorable foreign currency translation, partially offset by increased marketing investments.


24



Asia/Pacific

Heinz Asia/Pacific sales increased $253 million, or 11.3%, to $2.50 billion. Favorable exchange translation rates increased sales by 5.4%. The acquisition of Foodstar in China during the third quarter of Fiscal 2011 increased sales 3.2%. Pricing increased 2.1% and volume increased 0.5%. Total segment volume was negatively impacted by poor operating results in Australia. The Australian business has been impacted by a challenging market environment, higher promotions and reduced market demand. Price increases were realized on ABC® products in Indonesia, Complan® products in India, and Heinz® infant feeding products in China. Significant volume growth occurred in Complan® nutritional beverages in India, frozen potatoes and sauces in Japan, ABC® sauces in Indonesia, and Heinz® and Master® branded sauces and Heinz® branded infant feeding products in China. Beyond Australia, volume declines were noted in Glucon D® and Nycil® branded products in India.

Gross profit increased $46 million, or 6.4%, to $758 million, and the gross profit margin decreased to 30.3% from 31.7%. The $46 million increase in gross profit largely reflects favorable net pricing and foreign exchange translation rates and the Foodstar acquisition, partially offset by weakness in Australia, and Fiscal 2011 gains from the favorable renegotiation of a long-term supply contract in Australia and the sale of a factory in India. The decline in gross margin is a result of higher commodity costs and poor operating results in Australia which were only partially offset by higher pricing and productivity improvements. SG&A increased as a result of foreign exchange translation rates, the Foodstar acquisition, increased marketing and investments to improve capabilities in our emerging markets businesses. Operating income decreased by $19 million, or 7.4%, to $235 million, reflecting results in Australia.

U.S. Foodservice

Sales of the U.S. Foodservice segment increased $7 million, or 0.5%, to $1.35 billion. Pricing increased sales 2.3%, largely due to price increases across this segment's product portfolio to offset commodity cost increases. Volume decreased by 1.8%, due largely to ongoing weakness in restaurant foot traffic at some key customers, which was beginning to improve at the end of Fiscal 2012, and the impact of price increases.

Gross profit decreased $27 million, or 6.5%, to $390 million, and the gross profit margin decreased to 29.0% from 31.1%, as pricing and productivity improvements were more than offset by increased commodity and fuel costs and unfavorable volume and product mix. Operating income decreased $14 million, or 7.4%, to $170 million, which is primarily due to higher commodity costs, partially offset by a decrease in G&A expenses which reflects effective cost management, including reduced incentive compensation expense.

Rest of World

Sales for Rest of World increased $509 million, or 108.3%, to $979 million. The acquisition of Coniexpress S.A. Industrias Alimenticias ("Coniexpress" or "Quero") in Brazil , which was completed at the end of Fiscal 2011, increased sales 76.6%. Higher pricing increased sales by 21.5%, largely due to price increases in Latin America taken to mitigate inflation. (See the “Venezuela - Foreign Currency and Inflation” section below for further discussion on inflation in Venezuela.) Volume increased 11.9% mainly due to increases in Heinz® ketchup and baby food in Latin America. Volume in Latin America was unfavorably impacted in Fiscal 2011 by labor disruptions which occurred in Venezuela. Ketchup and sauces in South Africa and improvements across product categories in the Middle East also drove favorable volume. Foreign exchange translation rates decreased sales 1.7%.

Gross profit increased $158 million, or 93.2%, to $327 million, due mainly to the Quero acquisition in Brazil and higher pricing and volume, partially offset by increased commodity costs. The gross profit margin declined to 33.4% from 36.0% primarily reflecting the impact of the Quero acquisition. Operating income increased $52 million, or 96.9%, to $105 million resulting from higher pricing and volume and the Quero acquisition.


Liquidity and Financial Position

In connection with the Merger, the cash consideration was funded from equity contributions from the Sponsors and cash of the Company, as well as proceeds received by Merger Subsidiary in connection with the following debt financing pursuant to the Senior Credit Facilities and the Notes:

$9.5 billion in senior secured term loans, with tranches of 6 and 7 year maturities and fluctuating interest rates based on, at the Company's election, base rate or LIBOR plus a spread on each of the tranches, with respective spreads ranging from 125-150 basis points for base rate loans with a 2% base rate floor and 225-250 basis points for LIBOR loans with

25



a 1% LIBOR floor. Prior to the Merger, Merger Subsidiary entered into interest rate swaps to mitigate exposure to the variable interest rates on these term loans and as a result, the rate on future interest payments beginning in January 2015 and extending through July 2020 have been fixed at an average fixed rate of 4.5%,
$2.0 billion senior secured revolving credit facility with a 5 year maturity and a fluctuating interest rate based on, at the Company's election, base rate or LIBOR, with respective spreads ranging from 50-100 basis points for base rate loans and 150-200 basis points for LIBOR loans, on which nothing is currently drawn, and
$3.1 billion of 4.25% secured second lien notes with a 7.5 year maturity, which are required to be exchanged within one year of consummation of the Merger Agreement for registered notes.

On June 7, 2013, Merger Subsidiary's indebtedness was assumed by the Company, substantially increasing the Company's overall level of debt. Refer to Item 8 – “Consolidated Financial Statements and Supplementary Data – Note 10 – Debt and Financing Arrangements" for a more thorough discussion of our new debt arrangements.

Cash provided by operating activities was $35 million for the Successor period and cash used for operating activities was $372 million for the Predecessor period, compared to cash provided by operating activities of $350 million for the eight months ended December 23, 2012. The decline reflects the operating loss in the transition period resulting from merger and restructuring related costs and charges incurred on the early extinguishment of debt. The decline also reflects unfavorable movements in accounts payable and income taxes, additional pension funding, partially offset by favorable movements in inventories.
Cash provided by operating activities in Fiscal 2013 was $1.39 billion compared to $1.49 billion in Fiscal 2012. The decline reflects unfavorable movements in receivables, inventories and income taxes as well as increased pension contributions and cash paid in the current year for transaction costs related to the Merger. The unfavorable movement in receivables is largely due to an increase in cash received under the accounts receivable securitization program during Fiscal 2013. These were partially offset by favorable movements in payables. In addition, the settlement of the Foodstar earn-out resulted in a cash payment of $60 million, of which $15 million was reported in cash from operating activities and $45 million was reported in cash from financing activities on the consolidated cash flow statement. Cash paid in Fiscal 2013 for Fiscal 2012 productivity initiatives was $74 million ($29 million of which were capital expenditures) compared to $122 million ($25 million of which were net capital expenditures) in the prior year.
For Fiscal 2012, cash provided by operating activities was $1.49 billion compared to $1.58 billion in Fiscal 2011. The decline in Fiscal 2012 versus Fiscal 2011 reflects the cash impact of spending on productivity initiatives, as well as unfavorable movements in accounts payable and accrued income taxes, partially offset by favorable movements in receivables and inventories. Cash required for productivity initiatives was $122 million.

Cash used for investing activities totaled $21.7 billion for the Successor period and $89.8 million for the Predecessor period, compared to $205 million for the eight months ended December 23, 2012. Reflected in our cash flows used in investing activities for the Successor period is the merger consideration, net of cash on hand, of $21.5 billion.

For Fiscal 2013, cash used for investing activities totaled $373 million compared to $402 million in Fiscal 2012. Capital expenditures totaled $399 million (3.4% of sales) compared to $419 million (3.6% of sales) in Fiscal 2012, which was in-line with planned levels. Proceeds from disposals of property, plant and equipment were $19 million compared to $10 million in Fiscal 2012. The increase was primarily due to cash received for the sale of land in Indonesia in the current year. Proceeds from divestitures were $17 million in Fiscal 2013 compared to $4 million in Fiscal 2012. The Fiscal 2013 decrease in restricted cash was $4 million compared to an increase in restricted cash of $39 million in Fiscal 2012, which primarily represented collateral that the Company was required to maintain in connection with a total rate of return swap entered into during the third quarter of Fiscal 2012. Cash received for the sale of short-term investments in Brazil in Fiscal 2012 was $57 million.

For Fiscal 2012, cash used for investing activities totaled $402 million compared to $950 million of Fiscal 2011. Capital expenditures totaled $419 million (3.6% of sales) compared to $336 million (3.1% of sales) in Fiscal 2011, which was in-line with planned levels. Higher capital spending reflects increased investments in Project Keystone, capacity projects in emerging markets and productivity initiatives. Cash paid for acquisitions in Fiscal 2012 totaled $3 million compared to $618 million in Fiscal 2011 primarily related to Coniexpress in Brazil and Foodstar in China.

Cash provided by financing activities totaled $24.1 billion for the Successor period and $85.4 million for the Predecessor period, compared to cash used for financing activities of $824 million in the eight months ended December 23, 2012. The Merger was funded by equity contributions from the Sponsors totaling $16.5 billion as well as proceeds of approximately $11.5 billion under Senior Credit Facilities (of which $9.5 billion was drawn at the close of the transaction), and $3.1 billion upon the issuance of the Notes. The Company used such proceeds, which was partially offset by $320.8 million of debt issuance costs, to repay $4.2 billion of the Predecessor's outstanding short and long term debt and associated hedge contracts. Net cash used in the eight months

26



of Fiscal 2013 primarily related to an additional interest acquired in Coniexpress for $80 million and dividend payments of $334 million.

For Fiscal 2013, cash provided by financing activities totaled $257 million compared to cash used of $363 million in Fiscal 2012.
Proceeds from long-term debt were $205 million in Fiscal 2013 and $1.91 billion in Fiscal 2012. During the first quarter of Fiscal 2013, the Company entered into a new variable rate three year 15 billion Japanese yen denominated credit agreement. The proceeds were swapped to 188.5 million U.S. dollars and the interest rate was fixed at 2.22%. During the fourth quarter of Fiscal 2012, the Company issued $300 million 1.50% Notes due 2017 and $300 million 2.85% Notes due 2022. During the second quarter of Fiscal 2012, the Company issued $300 million 2.00% Notes due 2016 and $400 million 3.125% Notes due 2021. During the first quarter of Fiscal 2012, the Company issued $500 million of private placement notes at an average interest rate of 3.48% with maturities of three, five, seven and ten years. Additionally, during the first quarter of Fiscal 2012, the Company issued $100 million of private placement notes at an average interest rate of 3.38% with maturities of five and seven years.
Fiscal 2013 proceeds from debt issuances were used to terminate a variable rate three year 15 billion Japanese yen denominated credit agreement that was due October 2012, and settle the associated swap, which had an immaterial impact to the Company's consolidated statement of income. Overall, payments on long-term debt were $224 million in Fiscal 2013 compared to $1.44 billion in Fiscal 2012. The prior year proceeds from debt issuances were used for the repayment of commercial paper and to pay off the Company's $750 million of notes which matured on July 15, 2011 and $600 million notes which matured on March 15, 2012.
Net proceeds on commercial paper and short-term debt were $1.09 billion in Fiscal 2013 compared to net payments of $43 million in Fiscal 2012.
Cash payments for treasury stock purchases, net of cash from option exercises, used $26 million of cash in the Fiscal 2013 compared to $119 million in Fiscal 2012. The Company repurchased 2.4 million shares of stock at a total cost of $139 million in Fiscal 2013 and 3.9 million shares of stock at a total cost of $202 million in Fiscal 2012. Under the terms of the Merger Agreement, the Company suspended its share repurchase program from February 13, 2013 through the closing of the acquisition on June 7, 2013.
Dividend payments totaled $666 million in Fiscal 2013, compared to $619 million in Fiscal 2012, reflecting an increase in the annualized dividend per common share to $2.06. Until the effective time of the Merger, the Merger Agreement permitted the Company to continue to declare and pay regular quarterly cash dividends not to exceed $0.515 per share of common stock with record dates and payment dates that were substantially consistent with the Company's past practice. The Merger Agreement did not permit the Company to pay a prorated dividend for the quarter in which the merger was completed.
During the first quarter of Fiscal 2013, the Company acquired an additional 15% interest in Coniexpress S.A. Industrias Alimenticias ("Coniexpress") for $80 million. Prior to the transaction, the Company owned 80% of this business. During the second quarter of Fiscal 2012, the Company acquired an additional 10% interest in P.T. Heinz ABC Indonesia for $55 million. P.T. Heinz ABC Indonesia is a subsidiary of the Company that manufacturers Asian sauces and condiments as well as juices and syrups. Prior to the transaction, the Company owned 65% of this business.

For Fiscal 2011, cash used for financing activities totaled $483 million. Proceeds from long-term debt were $230 million relating to a variable rate, three-year 16 billion Japanese yen denominated credit agreement which was swapped to $193 million and the interest rate was fixed at 2.66%. Payments on long-term debt were $46 million as the proceeds discussed above were used in the funding of the Foodstar acquisition and for general corporate purposes. Net payments on commercial paper and short-term debt were $193 million. Cash proceeds from option exercises, net of treasury stock purchases, provided $85 million of cash. The Company purchased 1.4 million shares of stock at a total cost of $70 million. Dividend payments totaled $580 million.

At December 29, 2013, the Company had total debt of $14.87 billion and cash and cash equivalents of $2.46 billion.

In order to more efficiently manage foreign cash, we had a taxable distribution of earnings from certain foreign subsidiaries to the U.S. in the Predecessor period ended June 7, 2013 totaling approximately $420 million which resulted in a charge to our provision for income taxes of approximately $100 million in the same period. We were able to use existing foreign tax credit carryforwards to offset the tax liability created by such distributions such that there were no incremental cash taxes incurred in the period.  Prior to the Merger, our intent was to reinvest the accumulated earnings of our foreign subsidiaries in our international operations, except where remittance could be made tax free in certain situations, and our plans did not demonstrate a need to repatriate them to fund our cash requirements in the U.S. and, accordingly, a liability for the related deferred income taxes was not reflected in the Company's financial statements as of April 28, 2013. While we continue to expect to reinvest a substantial portion of the future earnings of our foreign subsidiaries in our international operations, as of the Acquisition date we determined that a portion of our accumulated unremitted foreign earnings are likely to be needed to meet U.S. cash needs. For the portion of unremitted foreign earnings preliminarily determined not to be permanently reinvested, a deferred tax liability of approximately

27



$345 million is recorded. The Company currently anticipates repatriating the majority of the accumulated unremitted earnings which are no longer permanently reinvested during 2014 resulting in the utilization of a substantial portion of its foreign tax credit carryforwards. As of December 29, 2013, the Company has not yet finalized its estimate of acquisition date deferred taxes associated with repatriation plans and further adjustments of this estimate may be made as the purchase price allocation is finalized during the measurement period.

At December 29, 2013, approximately $1.4 billion of cash and short-term investments were held by international subsidiaries. A portion of the undistributed earnings of certain of the subsidiaries is not considered to be permanently reinvested for which deferred taxes of $345 million have been provided or taxes have been previously paid.  As a result, the Company can repatriate up to $2.6 billion of cash to the U.S. without incurring any additional tax expense.  For those undistributed earnings considered to be permanently reinvested, our intent is to reinvest these funds in our international operations and our current plans do not demonstrate a need to repatriate the accumulated earnings to fund our U.S. cash requirements.   If we decide at a later date to repatriate these funds to the U.S., the Company would be required to provide taxes on these amounts based on the applicable U.S. tax rates net of credits for foreign taxes already paid.  

Berkshire Hathaway has an $8.0 billion preferred stock investment in Parent which requires a 9.0% annual dividend to be paid quarterly in cash or in-kind.  The Company made two distributions totaling $360 million in cash to Holdings during the Successor period and expects to continue to make quarterly cash distributions to fund this dividend.

The Company will continue to monitor the credit markets to determine the appropriate mix of long-term debt and short-term debt going forward. The Company believes that its operating cash flow, existing cash balances, together with the credit facilities and other available capital market financing, will be adequate to meet the Company's cash requirements for operations, including capital spending, debt maturities and interest payments. While the Company is confident that its needs can be financed, there can be no assurance that increased volatility and disruption in the global capital and credit markets will not impair its ability to access these markets on commercially acceptable terms.

Contractual Obligations and Other Commitments
Contractual Obligations
The Company is obligated to make future payments under various contracts such as debt agreements, lease agreements and unconditional purchase obligations. In addition, the Company has purchase obligations for materials, supplies, services and property, plant and equipment as part of the ordinary conduct of business. A few of these obligations are long-term and are based on minimum purchase requirements. Certain purchase obligations contain variable pricing components, and, as a result, actual cash payments are expected to fluctuate based on changes in these variable components. Due to the proprietary nature of some of the Company’s materials and processes, certain supply contracts contain penalty provisions for early terminations. The Company does not believe that a material amount of penalties is reasonably likely to be incurred under these contracts based upon historical experience and current expectations.
The following table represents the contractual obligations of the Company as of December 29, 2013:
 
Fiscal Year
 
 
 
2014
 
2015-2016
 
2017-2018
 
2019
Forward
 
Total
 
(In thousands)
Long Term Debt(1)
$
585,724

 
$
1,608,122

 
$
1,479,042

 
$
16,886,521

 
$
20,559,409

Capital Lease Obligations
13,154

 
21,826

 
6,334

 
10,439

 
51,753

Operating Leases
137,360

 
112,919

 
91,320

 
160,237

 
501,836

Purchase Obligations
1,309,655

 
454,390

 
160,057

 
132,709

 
2,056,811

Other Long Term Liabilities Recorded on the Balance Sheet
113,576

 
144,671

 
106,791

 
317,131

 
682,169

Total
$
2,159,469

 
$
2,341,928

 
$
1,843,544

 
$
17,507,037

 
$
23,851,978


(1)
Amounts include expected cash payments for interest on fixed rate long-term debt and fixed payments on interest rate swap contracts beginning in 2015 used to mitigate the variable interest payments on the Term Loans Facilities (see Item 8 – “Consolidated Financial Statements and Supplementary Data – Note 10 – Debt and Financing Arrangements”). Due to the uncertainty of forecasting expected variable rate interest payments on the Term Loan Facilities up until 2015 and other variable rate debt not covered by such swap contracts, those amounts are not included in the table.


28



Other long-term liabilities primarily consist of certain specific incentive compensation arrangements and pension and postretirement benefit commitments. Pension benefits are expected to continue into the foreseeable future, but the Company has not included anything in the 2019 Forward column as it is unable to estimate the amount of such benefit payments. Defined benefit plan contributions for the next fiscal year are expected to be approximately $67 million; however, actual contributions may be affected by pension asset and liability valuation changes during the year. Payments of postretirement benefits for the next fiscal year are expected to be approximately $14.7 million. Long-term liabilities related to income taxes and insurance accruals included on the consolidated balance sheet are excluded from the table above as the Company is unable to estimate the timing of the payments for these items.
At December 29, 2013, the total amount of gross unrecognized tax benefits for uncertain tax positions, including an accrual of related interest and penalties along with positions only impacting the timing of tax benefits, was approximately $62 million. The timing of payments will depend on the progress of examinations with tax authorities. The Company does not expect a significant tax payment related to these obligations within the next year. The Company is unable to make a reasonably reliable estimate as to when any significant cash settlements with taxing authorities may occur.

Off-Balance Sheet Arrangements and Other Commitments
The Company does not have guarantees or other off-balance sheet financing arrangements that we believe are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources.
As of April 28, 2013, the Company was a party to two operating leases for buildings and equipment, one of which also includes land, under which the Company has guaranteed supplemental payment obligations of approximately $150 million at the termination of these leases. On June 3, 2013, the Company paid $88.7 million to buy-out one of these leases and recorded it within Property, plant and equipment on the balance sheet as of that date.
On May 31, 2013, the Company entered into an amendment of the $175 million accounts receivables securitization program that extended the term until May 30, 2014. Prior to this amendment, the Company accounted for transfers of receivables pursuant to this program as a sale and removed them from the consolidated balance sheet. This amendment results in the transfers no longer qualifying for sale treatment under U.S. GAAP. As a result, all transfers are accounted for subsequent to this amendment as secured borrowings and the receivables sold pursuant to this program are included on the balance sheet as trade receivables, along with the Deferred Purchase Price. The amount of trade receivables included on the balance sheet at December 29, 2013 which are acting as collateral for these borrowings was $140 million. The Company acted as servicer for $159 million and $162 million of U.S. trade receivables sold through this program that were not recognized on the balance sheet as of April 28, 2013 and April 29, 2012, respectively. In addition, the Company acted as servicer for approximately $76.5 million, $184 million and $206 million of trade receivables which were sold to unrelated third parties without recourse as of December 29, 2013, April 28, 2013 and April 29, 2012, respectively.
The Company has not recorded any servicing assets or liabilities as of December 29, 2013 and April 28, 2013 for the arrangements discussed above because the fair value of these servicing agreements as well as the fees earned were not material to the financial statements.
No significant credit guarantees existed between the Company and third parties as of December 29, 2013.


Market Risk Factors
The Company is exposed to market risks from adverse changes in foreign exchange rates, interest rates, commodity prices and production costs. As a policy, the Company does not engage in speculative or leveraged transactions, nor does the Company hold or issue financial instruments for trading purposes.
Foreign Exchange Rate Sensitivity:  The Company’s cash flow and earnings are subject to fluctuations due to exchange rate variation. Foreign currency risk exists by nature of the Company’s global operations. The Company manufactures and sells its products on six continents around the world, and hence foreign currency risk is diversified.
The Company may attempt to limit its exposure to changing foreign exchange rates through both operational and financial market actions. These actions may include entering into forward contracts, option contracts, or cross currency swaps to hedge existing exposures, firm commitments and forecasted transactions. The instruments are used to reduce risk by essentially creating offsetting currency exposures.

29



The following table presents information related to foreign currency contracts held by the Company:
 
Aggregate Notional Amount
 
Net Unrealized Gains/(Losses)
 
December 29, 2013
 
April 28, 2013

April 29, 2012
 
December 29, 2013
 
April 28, 2013
 
April 29, 2012
 
(In millions)
Purpose of Hedge:
 
 
 

 
 

 
 
 
 

 
 

Intercompany cash flows
$
1,300

 
$
402

 
$
1,090

 
$
(1
)
 
$
(3
)
 
$
13

Forecasted purchases of raw materials and finished goods and foreign currency denominated obligations
753

 
422

 
578

 
34

 
21

 
(5
)
Forecasted sales and foreign currency denominated assets
397

 
49

 
245

 
1

 
11

 
9

Net investment hedges
8,300

 

 

 
(191
)
 

 

 
$
10,750

 
$
873

 
$
1,913

 
$
(157
)
 
$
29

 
$
17


As of December 29, 2013, the Company’s foreign currency contracts mature within two years. Contracts that meet qualifying criteria are accounted for as either foreign currency cash flow hedges, fair value hedges or net investment hedges of foreign operations. Any gains and losses related to contracts that do not qualify for hedge accounting are recorded in current period earnings in other income and expense.

We have numerous investments in our foreign subsidiaries, the net assets of which are exposed to volatility in foreign currency exchange rates. Beginning in October 2013, we have used cross currency swaps to hedge a portion of our net investment in such foreign operations against adverse movements in exchange rates. We designated cross currency swap contracts with a total notional value of $8.3 billion between pound sterling and USD, the Euro and USD, the Australian Dollar and USD, and the Japanese Yen and USD, as net investment hedges of a portion of our equity in foreign operations in those currencies. The component of the gains and losses on our net investment in these designated foreign operations driven by changes in foreign exchange rates, are economically offset by movements in the fair values of our cross currency swap contracts. The fair value of the swaps is calculated each period with changes in fair value reported in foreign currency translation adjustments within accumulated other comprehensive income (loss), net of tax. The net unrealized loss totaled $(190.6) million as of December 29, 2013. Such amounts will remain in other comprehensive income (loss) until the complete or substantially complete liquidation of our investment in the underlying foreign operations.
Substantially all of the Company’s foreign business units’ financial instruments are denominated in their respective functional currencies. Accordingly, exposure to exchange risk on foreign currency financial instruments is not material. (See Note 15, “Derivative Financial Instruments and Hedging Activities” in Item 8—“Financial Statements and Supplementary Data.”)
Interest Rate Sensitivity:  The Company is exposed to changes in interest rates primarily as a result of its borrowing and investing activities used to maintain liquidity and fund business operations. The nature and amount of the Company’s long-term and short-term debt can be expected to vary as a result of future business requirements, market conditions and other factors. The Company’s debt obligations totaled $14.87 billion, $6.01 billion (including $122 million relating to hedge accounting adjustments) and $5.03 billion (including $128 million relating to hedge accounting adjustments) at December 29, 2013, April 28, 2013 and April 29, 2012, respectively. The Company’s debt obligations are summarized in Note 10, “Debt and Financing Arrangements” in Item 8—“Financial Statements and Supplementary Data.”
In order to manage interest rate exposure, the Company historically utilized interest rate swaps to convert fixed-rate debt to floating. These derivatives were primarily accounted for as fair value hedges. Accordingly, changes in the fair value of these derivatives, along with changes in the fair value of the hedged debt obligations that were attributable to the hedged risk, were recognized in current period earnings.

30



The following table presents additional information related to interest rate contracts designated as fair value hedges by the Company (these derivatives were terminated as part of the Merger agreement):
 
April 28, 2013
 
April 29, 2012
 
(Dollars in millions)
Pay floating swaps—notional amount
$
160

 
$
160

Net unrealized gains
$
33

 
$
36

Weighted average maturity (years)
7.2

 
8.2

Weighted average receive rate
5.87
%
 
6.09
%
Weighted average pay rate
1.48
%
 
1.57
%
    
Prior to the Merger date, Merger Subsidiary entered into interest rate swaps to mitigate exposure to variable rate debt that was raised to finance the acquisition. These agreements were not designated as hedging instruments prior to the acquisition date, and as such, we recognized the fair value of these instruments as an asset with income of $118 million in the Successor period. As a result of the Merger and the transactions entered into in connection therewith, we have assumed the liabilities and obligations of Merger Subsidiary. Upon consummation of the acquisition, these interest rate swaps with an aggregate notional amount of $9 billion met the criteria for hedge accounting and were designated as hedges of future interest payments. The net unrealized gains on the interest rate swaps was $148 million as of December 29, 2013 and the weighted average maturity of the contracts is 6.2 years. The swap agreements do not become effective until January 2, 2015, therefore there have been no amounts exchanged through the eight months ended December 29, 2013.

The Company entered into a three-year total rate of return swap with an unaffiliated international financial institution during the third quarter of Fiscal 2012 with a notional amount of $119 million. This instrument was being used as an economic hedge to reduce the interest cost related to the Company's $119 million remarketable securities. The swap was being accounted for on a full mark-to-market basis through current earnings, with gains and losses recorded as a component of interest income. As a result of the Merger, the remarketable securities were repaid and the associated total rate of return swap was terminated. During the fiscal year ended April 28, 2013, the Company recorded a $2 million reduction in interest income, representing changes in the fair value of the swap and interest earned on the arrangement. Net unrealized losses totaled $1 million as of April 28, 2013. In connection with this swap, the Company was required to maintain a restricted cash collateral balance of $34 million with the counterparty for the term of the swap. See Note 15, “Derivative Financial Instruments and Hedging Activities” in Item 8-“Financial Statements and Supplementary Data” for additional information.

The Company had outstanding cross-currency interest rate swaps with a total notional amount of $316 million and $386 million as of April 28, 2013 and April 29, 2012, respectively, which were designated as cash flow hedges of the future payments of loan principal and interest associated with certain foreign denominated variable rate debt obligations. As a result of the merger, these contracts were terminated in May 2013. As a result of exchange rate movement between the Japanese Yen and the U.S. Dollar throughout the fiscal year, net losses of $70 million on the cross-currency derivatives were reclassified from other comprehensive loss to other expense, net during Fiscal 2013. This net loss on the derivative was offset by a currency gain on the principal balance of the underlying debt obligation. Net unrealized (losses)/gains related to these swaps totaled $(72) million and $20 million as of April 28, 2013 and April 29, 2012, respectively.
Effect of Hypothetical 10% Fluctuation in Market Prices:  As of December 29, 2013, the potential gain or loss in the fair value of the Company’s outstanding foreign currency contracts, interest rate contracts and cross-currency interest rate swaps assuming a hypothetical 10% fluctuation in currency and swap rates would be approximately:
 
Fair Value Effect
 
(In millions)
Foreign currency contracts
$
27

Interest rate swap contracts
$
82

Cross-currency interest rate swaps
$
1,068


However, it should be noted that any change in the fair value of the contracts, real or hypothetical, would be significantly offset by an inverse change in the value of the underlying hedged items. In relation to currency contracts, this hypothetical calculation assumes that each exchange rate would change in the same direction relative to the U.S. dollar.



31



Venezuela- Foreign Currency and Inflation

The Company applies highly inflationary accounting to its business in Venezuela. Under highly inflationary accounting, the financial statements of our Venezuelan subsidiary are remeasured into the Company's reporting currency (U.S. dollars) and exchange gains and losses from the remeasurement of monetary assets and liabilities are reflected in current earnings, rather than accumulated other comprehensive loss on the balance sheet, until such time as the economy is no longer considered highly inflationary. The impact of applying highly inflationary accounting for Venezuela on our consolidated financial statements is dependent upon movements in the official exchange rate between the Venezuelan bolivar fuerte and the U.S. dollar and the amount of net monetary assets and liabilities included in our subsidiary's balance sheet.

On March 18, 2013, the Venezuelan government announced the creation of a new foreign exchange mechanism called the Complimentary System of Foreign Currency Acquirement (or SICAD, which stands for Sistema Complimentario de Administración de Divisas). It operates similar to an auction system and allows entities in specific sectors to bid for U.S. dollar to be used for specified import transactions. In December 2013, the regulation that created the SICAD mechanism was amended to require the Central Bank of Venezuela to include on its website the weekly average exchange rate implied by transactions settled via the SICAD auction mechanism. For the weeks of December 23 and December 30, 2013, the SICAD rate posted on the website of the Central Bank of Venezuela was 11.3 BsF/US$. The Company settles its foreign currency denominated payables through the Venezuelan currency exchange board, known as CADIVI. In January 2014, the Venezuelan government announced the formation of the National Center of Foreign Trade (CENCOEX) to replace CADIVI. In addition, the government changed SICAD to include certain types of transactions, including dividends and royalties. The Company has never participated in the SICAD mechanism and has no plans to do so. As a result, the official exchange rate will continue to be used to remeasure the financial statements into U. S. dollars.
On February 8, 2013, the Venezuelan government announced the devaluation of its currency relative to the U.S. dollar, changing the official exchange rate from 4.30 to 6.30 BsF/US$. As a result, the Company recorded a $43 million pre-tax currency translation loss, which was reflected within other expense, net, on the consolidated statement of income during the fourth quarter of Fiscal 2013 ($39 million after-tax loss).
During Fiscal 2012, the Venezuelan government announced that it will be instituting price controls on a number of food and personal care products sold in the country.   Such controls have impacted the products that the Company currently sells within this country. In Fiscal 2013, sales in Venezuela represented approximately 3% of the Company's total sales.
The amount of net monetary assets and liabilities included in our subsidiary's balance sheet was $109 million at December 29, 2013 translated at the official exchange rate of 6.30 BsF/US$.

Recently Issued Accounting Standards
See Note 3 to the Consolidated Financial Statements in Item 8-“Financial Statements and Supplementary Data” of this Form 10-K.

Non-GAAP Measures

Included in this report are measures of financial performance that are not defined by generally accepted accounting principles in the United States (“GAAP”). Each of the measures is used in reporting to the Company's executive management and as a component of the Board of Directors' measurement of the Company's performance for incentive compensation purposes. Management and the Board of Directors believed that these measures provided useful information to investors, and included these measures in other communications to investors.
 
For each of these non-GAAP financial measures, a reconciliation of the differences between the non-GAAP measure and the most directly comparable GAAP measure has been provided. In addition, an explanation of why management believes the non-GAAP measure provides useful information to investors and any additional purposes for which management uses the non-GAAP measure are provided below. These non-GAAP measures should be viewed in addition to, and not in lieu of, the comparable GAAP measure.

Results Excluding Special Items
  
Management believes that this measure provides useful information to investors because it is the profitability measure used to evaluate earnings performance on a comparable year-over-year basis.


32



Transition Period Results Excluding Charges for Productivity Initiatives and Merger Related Costs

The adjustments were charges in the transition period for productivity initiatives and merger related costs that, in management's judgment, significantly affect the year-over-year assessment of operating results. See "The Merger" and “Transition Period Productivity Initiatives” sections for further explanation of these charges and the following reconciliation of the Company's Successor and Predecessor results excluding charges for merger related costs and productivity initiatives to the relevant GAAP measure.

 
Successor
 
February 8 - December 29, 2013
(Continuing Operations)
Sales
Gross Profit
SG&A
Merger Related Costs
Operating (Loss) / Income
Unrealized gain on derivative instruments
Pre-Tax (Loss) / Income
Net (Loss) / Income attributable to H.J. Heinz Company
 
(In thousands)
Reported results
$
6,239,562

$
1,651,771

$
1,501,807

$
157,938

$
(7,974
)
$
117,934

$
(297,705
)
$
(71,385
)
Charges for productivity initiatives and merger related costs, and unrealized gain on derivative instruments

168,667

239,332

157,938

565,936

117,934

475,142

336,547

Results excluding charges for productivity initiatives and merger related costs, and unrealized gain on derivative instruments
$
6,239,562

$
1,820,438

$
1,262,475

$

$
557,962

$

$
177,437

$
265,162

 
 
 
 
 
 
 
 
 
 
Predecessor
 
April 29 - June 7, 2013
(Continuing Operations)
Sales
Gross Profit
SG&A
Merger Related Costs
Operating Income
Pre-Tax (Loss) / Income
Net Loss attributable to H.J. Heinz Company
 
(In thousands)
Reported results
$
1,112,872

$
383,335

$
243,364

$
112,188

$
27,783

$
(130,327
)
$
(194,298
)
Charges for productivity initiatives and merger related costs

5,725

317

112,188

118,230

247,598

180,643

Results excluding charges for productivity initiatives and merger related costs
$
1,112,872

$
389,060

$
243,047

$

$
146,013

$
117,271

$
(13,655
)

There were no such adjustments in the eight months ended December 23, 2012.

Fiscal 2013 Results Excluding Special Items

The special items are charges in Fiscal 2013 related to the following that, in management's judgment, significantly affect the year-over-year assessment of operating results:

Transaction-related costs, including legal, accounting and other professional fees, recorded during the fourth quarter of Fiscal 2013 as a result of the Merger. See Note 4, “Merger and Acquisition” in Item 8- “Financial Statements and Supplementary Data” for further explanation.
A charge primarily related to asset write-downs for the closure of a factory in South Africa.
A currency translation loss recorded in our Venezuelan business due to a devaluation of its currency relative to the U.S. dollar during the fourth quarter of Fiscal 2013. See Note 20, "Venezuela- Foreign Currency" in Item 8—"Financial Statement and Supplementary Data" for further explanation.
A charge for the Company's early settlement of the earn-out payment that was due in 2014 related to the Fiscal 2011 acquisition of Foodstar. See Note 13, "Fair Value Measurements" in Item 8—"Financial Statement and Supplementary Data" for further explanation.


33



The following is the reconciliation of the Company's Fiscal 2013 results excluding these charges to the relevant GAAP measures.
 
Fiscal Year Ended
 
April 28, 2013
(Continuing Operations)
Sales
Gross Profit
SG&A
Operating Income
Pre-Tax Income
Net Income attributable to H.J. Heinz Company
 
(Amounts in thousands except per share amounts)
Reported results
$11,528,886
$4,195,470
$2,533,819
$1,661,651
$1,343,643
$1,087,615
Merger related costs


44,814

44,814

44,814

27,752

Charge for South Africa factory closure

3,543


3,543

3,543

2,550

Currency translation loss in Venezuela




42,698

39,132

Charge for settlement of Foodstar earn-out


12,081

12,081

12,081

12,081

Results excluding special items
$11,528,886
$4,199,013
$2,476,924
$1,722,089
$1,446,779
$1,169,130
 
 
 
 
 
 
 
(Totals may not add due to rounding)

Fiscal 2012 Results Excluding Charges for Productivity Initiatives
  
The adjustments were charges in Fiscal 2012 for productivity initiatives that, in management's judgment, significantly affect the year-over-year assessment of operating results. See the above “Fiscal 2012 Productivity Initiatives” section for further explanation of these charges and the following reconciliation of the Company's Fiscal 2012 results excluding charges for productivity initiatives to the relevant GAAP measure.

 
Fiscal Year Ended
 
April 29, 2012
(Continuing Operations)
Sales
Gross Profit
SG&A
Operating Income
Pre-Tax Income
Net Income attributable to H.J. Heinz Company
 
 
Reported results
$11,507,572
$3,994,789
$2,492,482
$1,502,307
$
1,236,089

$974,374
Charges for productivity initiatives

129,938

75,480

205,418

205,418

143,974

Results excluding charges for productivity initiatives
$11,507,572
$4,124,727
$2,417,002
$1,707,725
$
1,441,507

$1,118,348
 
 
 
 
 
 

EBITDA & Adjusted EBITDA (from Continuing Operations)

EBITDA is defined as earnings (net income or loss) before interest, taxes, depreciation and amortization, and is used by management to measure operating performance of the business. Adjusted EBITDA is a tool intended to assist our management in comparing our performance on a consistent basis for purposes of business decision-making by removing the impact of certain items that management believes do not directly reflect our core operations. These items include share-based compensation and non-cash compensation expense, other operating (income) expenses, net, and all other specifically identified costs associated with projects, transaction costs, restructuring and related professional fees.    EBITDA and Adjusted EBITDA are intended to provide additional information only and do not have any standard meaning prescribed by generally accepted accounting principles in the U.S. or U.S. GAAP. EBITDA and Adjusted EBITDA are not measurements of our financial performance under GAAP and should not be considered as alternatives to net income or other performance measures derived in accordance with GAAP, or as alternatives to cash flow from operating activities as measures of our liquidity. The Company’s definition of EBITDA may not be comparable to similarly titled measures used by other companies.

34




We believe that EBITDA and adjusted EBITDA are useful to investors, analysts and other external users of our consolidated financial statements because they are widely used by investors to measure operating performance without regard to items such as income taxes, net interest expense, depreciation and amortization, non-cash stock compensation expense and other one-time items, which can vary substantially from company to company depending upon accounting methods and book value of assets, financing methods, capital structure and the method by which assets were acquired.

Because of their limitations, neither EBITDA nor adjusted EBITDA should be considered as a measure of discretionary cash available to us to reinvest in the growth of our business or as a measure of cash that will be available to us to meet our obligations. Additionally, our presentation of Adjusted EBITDA is different than Adjusted EBITDA as defined in our debt agreements.

 
Successor
Predecessor
 
February 8 - December 29, 2013
April 29 - June 7, 2013
 
April 30 - December 23, 2012 FY 2013
 
April 28, 2013
 
(29 Weeks)
(6 Weeks)
 
(34 Weeks)
 
(52 Weeks)
 
(In thousands)
(Loss)/income from continuing operations, net of tax
$
(66,082
)
$
(191,424
)
 
$
769,272

 
$
1,102,045

Interest expense, net
395,432

32,472

 
168,085

 
255,812

(Benefit from)/provision for income tax
(231,623
)
61,097

 
142,528

 
241,598

Depreciation, including accelerated depreciation for restructuring
230,987

35,880

 
194,420

 
302,057

Amortization
48,975

4,276

 
27,833

 
42,161

   EBITDA
$
377,689

$
(57,699
)
 
$
1,302,138

 
$
1,943,673

 
 
 
 
 
 
 

Amortization of inventory step-up
383,300


 

 

Merger related costs
157,938

112,188

 

 
44,814

Severance related costs
283,142


 

 

Other special charges/(income)
61,830

(12,136
)
 
(5,798
)
 
584

Asset write downs
2,405


 

 

Unrealized gain on derivative instruments
(117,934
)

 

 

Loss from the extinguishment of debt

129,367

 

 

Other expense/(income), net
12,233

(3,729
)
 
5,216

 
62,196

Stock based compensation
4,800

4,318

 
36,600

 
51,000

   Adjusted EBITDA
$
1,165,403

$
172,309

 
$
1,338,156

 
$
2,102,267

The decrease in (loss)/income from continuing operations, net of tax in the transition period was driven by productivity initiatives, merger related costs, and an increase in interest expense related to new borrowings under the new Senior Credit Facilities and the Notes. The decrease was partially offset by an unrealized gain on interest rate swap agreements that served as economic hedges of future interest payments on new borrowings and a decrease in income tax expense. Adjusted EBITDA for the transition period was flat versus the eight months of fiscal year 2013 as category softness and reduced promotional pricing mainly in the U.S. during the transition period along with one extra week of global sales to align with the new calendar year, was offset by one extra month of sales being reported in Brazil in the prior year as the subsidiary's fiscal reporting was conformed to the Company's fiscal period as the subsidiary no longer required an earlier closing date to facilitate timely reporting, the timing of sales in the U.K. related to the Project Keystone go-live in May, and unfavorable exchange translation rates.

Discussion of Significant Accounting Estimates
In the ordinary course of business, the Company has made a number of estimates and assumptions relating to the reporting of results of operations and financial condition in the preparation of its financial statements in conformity with GAAP. Actual results could differ significantly from those estimates under different assumptions and conditions. The Company believes that the following discussion addresses its most critical accounting policies, which are those that are most important to the portrayal of the Company’s financial condition and results and require management’s most difficult, subjective and complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.

35



Marketing Costs—Trade promotions are an important component of the sales and marketing of the Company’s products and are critical to the support of the business. Trade promotion costs include amounts paid to retailers to offer temporary price reductions for the sale of the Company’s products to consumers, amounts paid to obtain favorable display positions in retailers’ stores, and amounts paid to customers for shelf space in retail stores. Accruals for trade promotions are initially recorded at the time of sale of product to the customer based on an estimate of the expected levels of performance of the trade promotion, which is dependent upon factors such as historical trends with similar promotions, expectations regarding customer participation, and sales and payment trends with similar previously offered programs. Our original estimated costs of trade promotions may change in the future as a result of changes in customer participation, particularly for new programs and for programs related to the introduction of new products. We perform monthly evaluations of our outstanding trade promotions, making adjustments where appropriate to reflect changes in estimates. Settlement of these liabilities typically occurs in subsequent periods primarily through an authorization process for deductions taken by a customer from amounts otherwise due to the Company. As a result, the ultimate cost of a trade promotion program is dependent on the relative success of the events and the actions and level of deductions taken by the Company’s customers for amounts they consider due to them. Final determination of the permissible deductions may take extended periods of time and could have a significant impact on the Company’s results of operations depending on how actual results of the programs compare to original estimates.
We offer coupons to consumers in the normal course of our business. Expenses associated with this activity, which we refer to as coupon redemption costs, are accrued in the period in which the coupons are offered. The initial estimates made for each coupon offering are based upon historical redemption experience rates for similar products or coupon amounts. We perform monthly evaluations of outstanding coupon accruals that compare actual redemption rates to the original estimates. We review the assumptions used in the valuation of the estimates and determine an appropriate accrual amount. Adjustments to our initial accrual may be required if actual redemption rates vary from estimated redemption rates.
Long-lived Assets, including Property, Plant and Equipment—Long-lived assets are recorded at their respective cost basis on the date of acquisition. Buildings, equipment and leasehold improvements are depreciated on a straight-line basis over the estimated useful life of such assets. The Company reviews long-lived assets, including intangibles with finite useful lives, and property, plant and equipment, whenever circumstances change such that the recorded value of an asset, or asset group, may not be recoverable. Factors that may affect recoverability include changes to the planned use of the asset and the closing of facilities. The estimates implicit in a recoverability test require significant judgment on the part of management, and require assumptions that can include: future volume trends and revenue and expense growth rates developed in connection with the Company's internal projections and annual operating plans, and in addition, external factors such as changes in macroeconomic trends. As each is management's best estimate on then available information, resulting estimates may differ from actual cash flows and estimated fair values. When the carrying value of an asset, or asset group, exceeds the future undiscounted cash flows, an impairment is indicated and the asset is written down to its fair value.
Goodwill and Indefinite-Lived Intangibles—Carrying values of goodwill and intangible assets with indefinite lives are reviewed for impairment at least annually, or when circumstances indicate that a possible impairment may exist. Indicators such as unexpected adverse economic factors, unanticipated technological change or competitive activities, decline in expected cash flows, lower growth rates, loss of key personnel, and changes in regulation, may signal that an asset has become impaired.

All goodwill is assigned to reporting units, which are primarily one level below our operating segments. Goodwill is assigned to the reporting unit that benefits from the cash flows arising from each business combination. The Company performs its impairment tests of goodwill at the reporting unit level. Subsequent to the Merger no annual impairment tests have yet been carried out but must be performed within 12 months of the date of the Merger. The Company tests goodwill for impairment by either performing a qualitative evaluation or a two-step quantitative test. The qualitative evaluation is an assessment of factors, including reporting unit specific operating results as well as industry, market and general economic conditions, to determine whether it is more likely than not that the fair values of a reporting unit is less than its carrying amount, including goodwill. The Company may elect to bypass this qualitative assessment for some or all of its reporting units and perform a two-step quantitative test.

The Company's estimates of fair value when testing for impairment of both goodwill and intangible assets with indefinite lives under the quantitative assessment are based on a discounted cash flow model as management believes forecasted cash flows are the best indicator of fair value. A number of significant assumptions and estimates are involved in the application of the discounted cash flow model, including future volume trends, revenue and expense growth rates, terminal growth rates, weighted-average cost of capital, tax rates, capital spending and working capital changes. The assumptions used in the discounted cash flow models are determined utilizing historical data, current and anticipated market conditions, product category growth rates, management plans, and market comparables. Most of these assumptions vary among the reporting units, but generally, higher assumed growth rates and discount rates are utilized for tests of reporting units for which the principal market is an emerging market compared to those for which the principal market is a developed market. For each of the reporting units tested quantitatively in Fiscal 2013, we used a market-participant, risk-adjusted-weighted-average cost of capital to discount the projected cash flows of those operations or assets. Such discount rates ranged from 7% to 15% in Fiscal 2013. Management believes the assumptions

36



used for the impairment evaluation are consistent with those that would be utilized by market participants performing similar valuations of our reporting units. For years prior to the Merger, we validated our fair values for reasonableness by comparing the sum of the fair values for all of our reporting units to our market capitalization and a reasonable control premium.

During the second quarter of Fiscal 2013, the Company changed its annual goodwill impairment testing date from the fourth quarter to the third quarter of each year. As such, the Company completed its annual review of goodwill during the third quarter of Fiscal 2013. We performed a qualitative assessment over nine of the Company's 19 reporting units. The results of the quantitative tests performed for these nine reporting units in prior periods were considered, and these tests each indicated that the fair values of these reporting units significantly exceeded their carrying amounts. We concluded that there were no significant events in Fiscal 2013 which had a material impact on the fair values of these reporting units.

For the reporting units which were tested quantitatively, the fair values of each reporting unit significantly exceeded their carrying values. No impairments related to continuing operations were identified during the Company's annual assessment of goodwill.

Indefinite-lived intangible assets are tested for impairment by either performing a qualitative evaluation or a quantitative calculation of fair value and comparison to carrying amount. The qualitative evaluation is an assessment of factors including, but not limited to, changes in management, overall financial performance, and other entity-specific events. The objective of the qualitative evaluation is to determine whether it is more likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying amount. The Company can choose to perform the qualitative assessment on none, some, or all of its indefinite-lived intangible assets. During the fourth quarter of Fiscal 2013, the Company completed its annual review of indefinite-lived intangible assets. No impairments were identified during the Company's annual assessment of indefinite-lived intangible assets.
 
As a result of the Merger, the carrying value of the Company's goodwill and indefinite-lived intangible assets has increased substantially and therefore the Company's exposure to impairment has increased.  The Company has not performed an annual impairment test for goodwill or indefinite-lived intangible assets in the transition period ended December 29, 2013 and has not identified any interim impairment triggers subsequent to the Merger, however, the Company will be required to perform an annual impairment test within one year of the Merger (before June 2014).  Fair value estimates used in testing for impairment of goodwill and indefinite-lived intangible assets require judgment and are sensitive to changes in underlying assumptions.  Examples of events or circumstances that could reasonably be expected to have an adverse effect on underlying key assumptions and estimated fair value of our reporting units and brands would include a significant decrease in projected future revenues and cash flows, failure to realize all of our projected cost savings, significant prolonged weakness in demand for our products in a specific market or category, adverse competitive pressures that affect our longer term volume and pricing trends and volatility in the equity and debt markets or other country specific factors which could result in a higher discount rate.

Retirement Benefits—The Company sponsors pension and other retirement plans in various forms covering substantially all employees who meet eligibility requirements. Several actuarial and other factors that attempt to anticipate future events are used in calculating the expense and obligations related to the plans. These factors include assumptions about the discount rate, expected return on plan assets, turnover rates and rate of future compensation increases as determined by the Company, within certain guidelines. In addition, the Company uses best estimate assumptions, provided by actuarial consultants, for withdrawal and mortality rates to estimate benefit expense. The financial and actuarial assumptions used by the Company may differ materially from actual results due to changing market and economic conditions, higher or lower withdrawal rates or longer or shorter life spans of participants. These differences may result in a significant impact to the amount of pension expense recorded by the Company.
The Company recognized pension (income)/expense related to defined benefit programs of $33 million, $17 million, $(4) million, $25 million, and $27 million for the Successor period February 8, 2013 to December 29, 2013, the Predecessor period April 29, 2013 to June 7, 2013, and fiscal years 2013, 2012, and 2011 respectively, which reflected expected return on plan assets of $116 million, $29 million, $251 million, $235 million, and $229 million, respectively. The Company contributed $152 million and $7 million to the defined benefit plans in the Successor period February 8, 2013 to December 29, 2013 and the Predecessor period April 29, 2013 to June 7, 2013, respectively. The Company contributed $69 million to its pension plans in Fiscal 2013 and $23 million in Fiscal 2012. The Company expects to contribute approximately $67 million to its pension plans in Calendar Year 2014.
One of the significant assumptions for pension plan accounting is the expected rate of return on pension plan assets. Over time, the expected rate of return on assets should approximate actual long-term returns. In developing the expected rate of return, the Company considers average real historic returns on asset classes, the investment mix of plan assets, investment manager performance and projected future returns of asset classes developed by respected advisors. When calculating the expected return on plan assets, the Company primarily uses a market-related-value of assets that spreads asset gains and losses (difference between

37



actual return and expected return) uniformly over 3 years. The weighted average expected rate of return on plan assets used to calculate annual expense was 6.2% for the Successor Period ended December 29, 2013, 8.1% for the Predecessor Period ended June 7, 2013 and the year ended April 28, 2013, and 8.2% for the years ended April 29, 2012 and April 27, 2011. For purposes of calculating expense for 2014, the weighted average rate of return will be 6.2%.
Another significant assumption used to value benefit plans is the discount rate. The discount rate assumptions used to value pension and postretirement benefit obligations reflect the rates available on high quality fixed income investments available (in each country where the Company operates a benefit plan) as of the measurement date. The Company uses bond yields of appropriate duration for each country by matching it with the duration of plan liabilities. The weighted average discount rate used to measure the projected benefit obligation was 4.5% for the Successor Period ended December 29, 2013, 4.1% for the Predecessor Period ended June 7, 2013, 4.0% for the year ended April 28, 2013, and 4.8% for the year ended April 29, 2012.
Deferred gains and losses result from actual experience differing from expected financial and actuarial assumptions. The pension plans currently have a deferred gain of $99.5 million at December 29, 2013. Deferred gains and losses outside the corridor are amortized through the actuarial calculation into annual expense over the estimated average remaining service period of plan participants, which is currently 10 years. However, if all or almost all of a plan’s participants are inactive, deferred gains and losses are amortized through the actuarial calculation into annual expense over the estimated average remaining life expectancy of the inactive participants.
The Company’s investment policy provides general guidelines to assist plan fiduciaries in making certain decisions with respect to the investment of Plan assets. Those guidelines primarily relate to the selection and monitoring of investment vehicles, investment managers and asset allocation strategies.
The Company’s defined benefit pension plans’ weighted average actual and target asset allocation at December 29, 2013 and April 28, 2013 were as follows:
 
 
Plan Assets at
 
Target
Allocation at
Asset Category
 
December 29, 2013
 
April 28, 2013
 
December 29, 2013
 
April 28, 2013
Equity securities
 
53
%
 
62
%
 
58
%
 
58
%
Debt securities
 
26
%
 
29
%
 
33
%
 
33
%
Real estate
 
8
%
 
8
%
 
8
%
 
8
%
Cash and cash equivalents
 
13
%
 
1
%
 
1
%
 
1
%
 
 
100
%
 
100
%
 
100
%
 
100
%

The Company also provides certain postretirement health care benefits. The postretirement health care benefit expense and obligation are determined using the Company’s assumptions regarding health care cost trend rates. The health care trend rates are developed based on historical cost data, the near-term outlook on health care trends and the likely long-term trends. The postretirement health care benefit obligation at December 29, 2013 was determined using an average initial health care trend rate of 6.0% which gradually decreases to an average ultimate rate of 4.8% in 8 years. A one percentage point increase in the assumed health care cost trend rate would increase the service and interest cost components of annual expense by $0.9 million and increase the benefit obligation by $15.7 million. A one percentage point decrease in the assumed health care cost trend rates would decrease the service and interest cost by $0.8 million and decrease the benefit obligation by $14.2 million.
Sensitivity of Assumptions
If we assumed a 100 basis point change in the following rates, the Company’s 2014 projected benefit obligation and expense would increase (decrease) by the following amounts (in millions):


38



 
100 Basis Point
 
Increase
 
Decrease
Pension benefits
 
 
 
Discount rate used in determining projected benefit obligation
$(417)
 
$519
Discount rate used in determining net pension expense
< $1
 
$(5)
Long-term rate of return on assets used in determining net pension expense
$(19)
 
$19
Other benefits
 
 
 
Discount rate used in determining projected benefit obligation
$(18)
 
$20
Discount rate used in determining net benefit expense
< $1
 
< $1

Income Taxes—The Company computes its annual tax rate based on the statutory tax rates and tax planning opportunities available to it in the various jurisdictions in which it earns income. Significant judgment is required in determining the Company’s annual tax rate and in evaluating uncertainty in its tax positions. The Company recognizes a benefit for tax positions that it believes will more likely than not be sustained upon examination. The amount of benefit recognized is the largest amount of benefit that the Company believes has more than a 50% probability of being realized upon settlement. The Company regularly monitors its tax positions and adjusts the amount of recognized tax benefit based on its evaluation of information that has become available since the end of its last financial reporting period. The annual tax rate includes the impact of these changes in recognized tax benefits. When adjusting the amount of recognized tax benefits the Company does not consider information that has become available after the balance sheet date, but does disclose the effects of new information whenever those effects would be material to the Company’s financial statements. The difference between the amount of benefit taken or expected to be taken in a tax return and the amount of benefit recognized for financial reporting represents unrecognized tax benefits. These unrecognized tax benefits are presented in the balance sheet principally within other non-current liabilities.
The Company records valuation allowances to reduce deferred tax assets to the amount that is more likely than not to be realized. When assessing the need for valuation allowances, the Company considers future taxable income and ongoing prudent and feasible tax planning strategies. Should a change in circumstances lead to a change in judgment about the realizability of deferred tax assets in future years, the Company would adjust related valuation allowances in the period that the change in circumstances occurs, along with a corresponding increase or charge to income.
The Company has a significant amount of undistributed earnings of foreign subsidiaries that are considered to be indefinitely reinvested. Our intent is to continue to reinvest these earnings to support our priorities for growth in international markets and our current plans do not demonstrate a need to repatriate them to fund our U.S. operations. If we decided at a later date to repatriate these funds to the U.S., the Company would be required to provide taxes on these amounts based on the applicable U.S. tax rates net of credits for foreign taxes already paid. The Company has not determined the deferred tax liability associated with these undistributed earnings, as such determination is not practicable. The Company believes it is not practicable to calculate the deferred tax liability associated with these undistributed earnings as there is a significant amount of uncertainty with respect to the tax impact resulting from the significant judgment required to analyze the amount of foreign tax credits attributable to the earnings, the potential timing of any distributions, as well as the local withholding tax and other indirect tax consequences that may arise due to the potential distribution of these earnings. While we continue to expect to reinvest a substantial portion of the prior and future earnings of our foreign subsidiaries in our international operations, as of the Acquisition date we determined that a portion of our accumulated undistributed foreign earnings are likely to be needed to meet U.S. cash needs. For the portion of unremitted foreign earnings preliminarily determined not to be permanently reinvested, a deferred tax liability of approximately $342 million is recorded at December 29, 2013. The Company currently anticipates repatriating the majority of the earnings which are no longer permanently reinvested during 2014. The Company has not yet finalized its estimate of acquisition date deferred taxes associated with repatriation plans and further adjustments of this estimate may be made as the purchase price allocation is finalized during the measurement period.

Input Costs
In general, the effects of cost inflation may be experienced by the Company in future periods. During the Successor period February 8, 2013 to December 29, 2013, the Predecessor period April 29, 2013 to June 7, 2013, and Fiscals 2013, 2012, and 2011, the Company experienced wide-spread inflationary increases in commodity input costs, which is expected to continue in the year ended December 28, 2014. Price increases and continued productivity improvements are expected to more than offset these cost increases.

39




Stock Market Information
Prior to the Fiscal 2013 year end, H. J. Heinz Company common stock was traded principally on The New York Stock Exchange under the symbol HNZ. As a result of the Merger, the common stock of the Company is now privately held by a subsidiary of Parent, the sole shareholder of the Company. The Company's stock is no longer traded on The New York Stock Exchange or any other stock exchange or public market. As a result Earnings per share information has not been presented.

Item 7A.
Quantitative and Qualitative Disclosures About Market Risk.
This information is set forth in this report in Item 7—“Management’s Discussion and Analysis of Financial Condition and Results of Operations” on pages 29 through 31.

40



Item 8.
Financial Statements and Supplementary Data.

TABLE OF CONTENTS



41



Report of Management on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. Internal control over financial reporting refers to the process designed by, or under the supervision of, our Chief Executive Officer and Chief Financial Officer, and effected by our Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States of America, and includes those policies and procedures that:
(1) Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;
(2) Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles;
(3) Provide reasonable assurance that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and
(4) Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management has used the framework set forth in the report entitled “Internal Control—Integrated Framework" (1992) published by the Committee of Sponsoring Organizations of the Treadway Commission to evaluate the effectiveness of the Company’s internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act. Based on this evaluation, management has concluded that the Company’s internal control over financial reporting was effective as of the end of the most recent fiscal year.

/s/  Bernardo Hees
Chief Executive Officer
 
 
/s/  Paulo Basilio
Chief Financial Officer

March 7, 2014


42



Report of Independent Registered Public Accounting Firm (Successor)


To Shareholders and Board of Directors of H.J. Heinz Company:

In our opinion, the accompanying consolidated balance sheet and the related consolidated statement of operations, comprehensive income (loss), equity and cash flows present fairly, in all material respects, the financial position of H.J. Heinz Company and its subsidiaries ("Successor Company") at December 29, 2013, and the results of their operations and their cash flows for the period from February 8, 2013 through December 29, 2013 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing under item 15(a)(2) presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and the financial statement schedule are the responsibility of the Successor Company’s management. Our responsibility is to express an opinion on these financial statements and the financial statement schedule based on our audit. We conducted our audit of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.



/s/  PRICEWATERHOUSECOOPERS LLP

Pittsburgh, Pennsylvania
March 7, 2014


43



Report of Independent Registered Public Accounting Firm (Predecessor)


To Shareholders and Board of Directors of H.J. Heinz Company:

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, comprehensive income (loss), equity and cash flows present fairly, in all material respects, the financial position of H.J. Heinz Company and its subsidiaries ("Predecessor Company") at April 28, 2013 and April 29, 2012, and the results of their operations and their cash flows for the period from April 29, 2013 to June 7, 2013 and for each of the three years in the period ended April 28, 2013 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing under item 15(a)(2) presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and the financial statement schedule are the responsibility of the Predecessor Company’s management. Our responsibility is to express an opinion on these financial statements and the financial statement schedule based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.




/s/  PRICEWATERHOUSECOOPERS LLP

Pittsburgh, Pennsylvania
March 7, 2014




44



H. J. Heinz Company and Subsidiaries
Consolidated Statements of Operations

Successor

Predecessor

February 8 - December 29, 2013

April 29 - June 7, 2013

April 28, 2013

April 29, 2012

April 27, 2011

(29 Weeks)

(6 Weeks)

(52 Weeks)

(52 1/2 Weeks)

(52 Weeks)
 
(In thousands)
Sales
$
6,239,562


$
1,112,872


$
11,528,886


$
11,507,572


$
10,558,636

Cost of products sold
4,587,791


729,537


7,333,416


7,512,783


6,614,259

Gross profit
1,651,771


383,335


4,195,470


3,994,789


3,944,377

Selling, general and administrative expenses
1,501,807


243,364


2,489,005


2,492,482


2,256,739

Merger related costs
157,938


112,188


44,814





Operating (loss)/income
(7,974
)

27,783


1,661,651


1,502,307


1,687,638

Interest income
13,071


2,878


27,795


34,547


22,548

Interest expense
408,503


35,350


283,607


293,009


272,660

Unrealized gain on derivative instruments
117,934









Other expense, net
(12,233
)

(125,638
)

(62,196
)

(7,756
)

(21,204
)
(Loss)/income from continuing operations before income taxes
(297,705
)

(130,327
)

1,343,643


1,236,089


1,416,322

(Benefit from)/provision for income taxes
(231,623
)

61,097


241,598


244,966


370,817

(Loss)/income from continuing operations
(66,082
)

(191,424
)

1,102,045


991,123


1,045,505

Loss from discontinued operations, net of tax
(5,636
)

(1,273
)

(74,712
)

(51,215
)

(39,557
)
Net (loss)/income
(71,718
)

(192,697
)

1,027,333


939,908


1,005,948

Less: Net income attributable to the noncontrolling interest
5,303


2,874


14,430


16,749


16,438

Net (loss)/income attributable to H. J. Heinz Company
$
(77,021
)

$
(195,571
)

$
1,012,903


$
923,159


$
989,510

Amounts attributable to H. J. Heinz Company common shareholders:






 


 


 

(Loss)/income from continuing operations, net of tax
$
(71,385
)

$
(194,298
)

$
1,087,615


$
974,374


$
1,029,067

Loss from discontinued operations, net of tax
(5,636
)

(1,273
)

(74,712
)

(51,215
)

(39,557
)
Net (loss)/income
$
(77,021
)

$
(195,571
)

$
1,012,903


$
923,159


$
989,510



See Notes to Consolidated Financial Statements


45




H. J. Heinz Company and Subsidiaries

Consolidated Statements of Comprehensive Income/(Loss)

 
Successor
 
Predecessor
 
February 8 - December 29, 2013
 
April 29 - June 7, 2013
 
April 28, 2013
 
April 29, 2012
 
April 27, 2011
 
(29 Weeks)
 
(6 Weeks)
 
(52 Weeks)
 
(52 1/2 Weeks)
 
(52 Weeks)
 
(In thousands)
Net (loss)/income
$
(71,718
)
 
$
(192,697
)
 
$
1,027,333

 
$
939,908

 
$
1,005,948

Other comprehensive income/(loss), net of tax:
 
 

 
 
 
 
 
 
Foreign currency translation adjustments
11,247

 
(97,863
)
 
(228,980
)
 
(377,491
)
 
567,876

Net pension and post-retirement benefit gains/ (losses)
102,452

 

 
(189,302
)
 
(258,079
)
 
77,298

Reclassification of net pension and post-retirement benefit losses to net income

 
7,266

 
54,833

 
56,813

 
53,353

Net deferred gains/(losses) on derivatives from periodic revaluations
111,196

 
(1,059
)
 
(11,743
)
 
30,377

 
9,395

Net deferred (gains)/losses on derivatives reclassified to earnings
(2,743
)
 
6,552

 
29,608

 
(13,811
)
 
(20,794
)
Total comprehensive income/(loss)
150,434

 
(277,801
)
 
681,749

 
377,717

 
1,693,076

Comprehensive loss/(income) attributable to the noncontrolling interest
5,555

 
1,193

 
1,344

 
734

 
(21,373
)
Comprehensive income attributable to H.J. Heinz Company
$
155,989

 
$
(276,608
)
 
$
683,093

 
$
378,451

 
$
1,671,703


See Notes to Consolidated Financial Statements


46




H. J. Heinz Company and Subsidiaries
Consolidated Balance Sheets

Successor

Predecessor

December 29,
2013

April 28, 2013
FY 2013

April 29, 2012
FY 2012
 
(In thousands)
Assets



 


 

Current assets:



 


 

Cash and cash equivalents
$
2,458,992


$
2,476,699


$
1,330,441

Trade receivables (net of allowances: $684, $7,957 and $10,680)
1,099,655


872,864


815,600

Other receivables (net of allowances: $98, $360 and $607)
244,528


200,988


177,910

Inventories:



 


 

Finished goods and work-in-process
1,138,373


1,076,779


1,082,317

Packaging material and ingredients
297,023


255,918


247,034

Total inventories
1,435,396


1,332,697


1,329,351

Prepaid expenses
145,096


160,658


174,795

Other current assets
60,458


91,656


54,139

Total current assets
5,444,125


5,135,562


3,882,236

Property, plant and equipment:



 


 

Land
225,577


78,800


81,185

Buildings and leasehold improvements
617,413


996,719


1,009,379

Equipment, furniture and other
1,986,501


4,283,570


4,175,997

 
2,829,491


5,359,089


5,266,561

Less accumulated depreciation
165,999


2,900,288


2,782,423

Total property, plant and equipment, net
2,663,492


2,458,801


2,484,138

Other non-current assets:



 


 

Goodwill
15,070,062


3,079,250


3,185,527

Trademarks, net
12,130,873


1,037,283


1,090,892

Other intangibles, net
2,358,781


378,187


407,802

Other non-current assets
1,305,015