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Operating income increased $57 million, or 3.8%, to $1.56 billion, reflecting the items above.
Net interest expense decreased $25 million, to $251 million, reflecting a $44 million decrease in
interest expense and a $19 million decrease in interest income. The decreases in interest income and
interest expense are primarily due to lower average interest rates.
Other expenses, net, increased $111 million primarily due to a $105 million decrease in currency
gains, and $9 million of charges recognized in connection with the August 2009 dealer remarketable
securities (“DRS”) exchange transaction (see below in “Liquidity and Financial Position” for further
explanation of this transaction). The decrease in currency gains reflects Fiscal 2009 gains of
$107 million related to forward contracts that were put in place to help mitigate the unfavorable
impact of translation associated with key foreign currencies for Fiscal 2009.
The effective tax rate for Fiscal 2010 was 27.8% compared to 28.4% in Fiscal 2009. The Fiscal
2010 effective tax rate was lower than Fiscal 2009 primarily due to tax efficient financing of the
Company’s operations, partially offset by higher taxes on repatriation of earnings.
Income from continuing operations attributable to H. J. Heinz Company was $914 million
compared to $930 million in Fiscal 2009, a decrease of 1.6%. The decrease reflects the Fiscal 2009
currency gains discussed above, which were $66 million after-tax ($0.21 per share), and $28 million in
after-tax charges ($0.09 per share) in Fiscal 2010 for targeted workforce reductions and non-cash
asset write-offs, partially offset by higher operating income, reduced net interest expense, a lower
effective tax rate and an $11 million after-tax gain related to property sold in the Netherlands.
Diluted earnings per share from continuing operations was $2.87 in Fiscal 2010 compared to $2.91 in
Fiscal 2009, down 1.4%. EPS movements were unfavorably impacted by $0.29, or $90 million of net
income, from currency fluctuations, after taking into account the net effect Fiscal 2010 and 2009
currency translation contracts, as well as foreign currency movements on translation and U.K.
transaction costs.
The impact of fluctuating translation exchange rates in Fiscal 2010 has had a relatively
consistent impact on all components of operating income on the consolidated statement of
income. The impact of cross currency sourcing of inventory reduced gross profit and operating
income but did not affect sales.
FISCAL YEAR 2010 OPERATING RESULTS BY BUSINESS SEGMENT
North American Consumer Products
Sales of the North American Consumer Products segment increased $56 million, or 1.8%, to
$3.19 billion. Net prices grew 1.9% reflecting the carryover impact of price increases taken across the
majority of the product portfolio throughout Fiscal 2009, partially offset by increased promotional
spending in Fiscal 2010, particularly on Smart Ones» frozen entrees and Heinz» ketchup. Volume
decreased 1.5%, reflecting declines in frozen meals and desserts due to category softness, competitor
promotional activity and the impact of price increases. Volume declines were also noted in Ore-Ida»
frozen potatoes, Classico» pasta sauces and frozen snacks. These volume declines were partially
offset by increases in TGI Friday’s» Skillet Meals due to new product introductions and increased
trade promotions and marketing as well as growth in Heinz» ketchup. The acquisition of Arthur’s
Fresh Company, a small chilled smoothies business in Canada, at the beginning of the third quarter
of Fiscal 2010 increased sales 0.2%. Favorable Canadian exchange translation rates increased sales
1.3%.
Gross profit increased $80 million, or 6.3%, to $1.34 billion, and the gross profit margin increased
to 41.9% from 40.1%. The higher gross margin reflects productivity improvements and the carryover
impact of price increases, partially offset by increased commodity costs. The favorable impact of
foreign exchange on gross profit was more than offset by unfavorable volume. Operating income
increased $47 million, or 6.4%, to $771 million, reflecting the improvement in gross profit and
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