
19.	Venezuela- Foreign Currency and Inflation

Foreign Currency

The local currency in Venezuela is the Venezuelan bolivar fuerte (“VEF”). A currency control board exists in Venezuela that is responsible for foreign exchange procedures, including approval of requests for exchanges of VEF for U.S. dollars at the official (government established) exchange rate. Our business in Venezuela has historically been successful in obtaining U.S. dollars at the official exchange rate for imports of ingredients, packaging, manufacturing equipment, and other necessary inputs, and for dividend remittances, albeit on a delay. In May 2010, the government of Venezuela effectively closed down the unregulated parallel market, which existed for exchanging VEF for U.S. dollars through securities transactions. Our Venezuelan subsidiary has no recent history of entering into exchange transactions in this parallel market.

The Company uses the official exchange rate to translate the financial statements of its Venezuelan subsidiary, since we expect to obtain U.S. dollars at the official rate for future dividend remittances. The official exchange rate in Venezuela had been fixed at 2.15 VEF to 1 U.S. dollar for several years, despite significant inflation. On January 8, 2010, the Venezuelan government announced the devaluation of its currency relative to the U.S. dollar. The official exchange rate for imported goods classified as essential, such as food and medicine, changed from 2.15 to 2.60, while payments for other non-essential goods moved to an exchange rate of 4.30. Effective January 1, 2011, the Venezuelan government eliminated the 2.60 exchange rate for essential goods leaving one flat official exchange rate of 4.30.

The majority, if not all, of our imported products in Venezuela fell into the essential classification and qualified for the 2.60 exchange rate. The elimination of the 2.60 rate had an immaterial unfavorable impact on the Company’s cost of imported goods, capital spending and the payment of U.S. dollar-denominated payables to suppliers recorded as of January 1, 2011 in Venezuela. Also, since our Venezuelan subsidiary’s financial statements are remeasured using the 4.30 rate, as this is the rate expected to be applicable to dividend repatriations, the elimination of the 2.60 rate had no impact relative to this remeasurement. As of April 27, 2011, the amount of VEF pending government approval to be used for dividend repatriations is $27.9 million at the 4.30 rate, of which $8.5 million has been pending government approval since September 2008 and $19.4 million since November 2009.

During Fiscal 2010, the Company recorded a $61.7 million currency translation loss as a result of the currency devaluation, which had been reflected as a component of accumulated other comprehensive loss within unrealized translation adjustment. The net asset position of our Venezuelan subsidiary has also been reduced as a result of the devaluation to approximately $106.7 million at April 27, 2011.

Highly Inflationary Economy

An economy is considered highly inflationary under U.S. GAAP if the cumulative inflation rate for a three-year period meets or exceeds 100 percent. Based on the blended National Consumer Price Index, the Venezuelan economy exceeded the three-year cumulative inflation rate of 100 percent during the third quarter of Fiscal 2010. As a result, the financial statements of our Venezuelan subsidiary have been consolidated and reported under highly inflationary accounting rules beginning on January 28, 2010, the first day of our Fiscal 2010 fourth quarter. 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 applicable exchange rates (at this time, the official rate) between the local currency and the U.S. dollar and the amount of monetary assets and liabilities included in our subsidiary’s balance sheet. At April 27, 2011, the U.S. dollar value of monetary assets, net of monetary liabilities, which would be subject to an earnings impact from exchange rate movements for our Venezuelan subsidiary under highly inflationary accounting was $66.8 million.