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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
(X) Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934 Fee Required
For the fiscal year ended December 31, 1994
OR
( ) Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 No Fee Required
For the transition period from ..... to .....
Registrant, State of Incorporation,
Address and Telephone Number
Hershey Foods Corporation
Commission I.R.S. Employer
File No. (a Delaware Corporation) Identification No.
1-183 100 Crystal A Drive 23-0691590
Hershey, Pennsylvania 17033
(717) 534-6799
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
Common Stock, one dollar par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
Class B Common Stock, one dollar par value
(Title of class)
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
(X) No ( )
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 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. ( )
State the aggregate market value of the voting stock held by non-
affiliates of the Registrant as of a specified date within 60 days prior
to the date of filing.
Common Stock, one dollar par value $2,443,074,977, as of February
28, 1995.
Class B Common Stock, one dollar par value $4,408,824, as of February
28, 1995. While the Class B Common Stock is not listed for public
trading on any exchange or market system, shares of that class are
convertible into shares of Common Stock at any time on a share-for-
share basis. The market value indicated is calculated based on the
closing price of the Common Stock on the New York Stock Exchange on
February 28, 1995.
Indicate the number of shares outstanding of each of the Registrant's
classes of common stock as of the latest practicable date.
Common Stock, one dollar par value 71,492,218 shares, as of
February 28, 1995.
Class B Common Stock, one dollar par value 15,242,979 shares,
as of February 28, 1995.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Corporation's 1994 Annual Report to Stockholders for
the year ended December 31, 1994 are incorporated by reference into Part
II and are reproduced herein as Exhibit 13. Portions of the Proxy
Statement for the Corporation's 1995 Annual Meeting of Stockholders are
incorporated by reference into Part III.
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PART I
Item 1. BUSINESS
Hershey Foods Corporation and its subsidiaries (the
"Corporation") are engaged in the manufacture, distribution and
sale of consumer food products. The Corporation, primarily through
its Hershey Chocolate North America, Hershey Grocery, Hershey
International and Hershey Pasta Group divisions, produces and
distributes a broad line of chocolate, confectionery, grocery and
pasta products.
The Corporation was organized under the laws of the State of
Delaware on October 24, 1927, as a successor to a business founded
in 1894 by Milton S. Hershey.
The Corporation's principal product groups include: chocolate
and confectionery products sold in the form of bar goods, bagged
items, and boxed items; grocery products in the form
of baking ingredients, chocolate drink mixes, peanut butter,
dessert toppings, and beverages; and pasta products sold in a
variety of shapes, sizes, and packages. The Corporation believes
it is a major factor in these product groups in North America.
Operating profit margins vary considerably among individual
products and brands. Generally, such margins on chocolate and
confectionery products are greater than those on pasta and other
food products.
The Corporation manufactures in the United States chocolate and
confectionery products in a variety of packaged forms and markets
them under more than 50 brands. The different packaged forms
include various arrangements of the same bar products, such as
boxes, trays and bags, as well as a variety of different sizes and
weights of the same bar product, such as snack size, standard, king
size, large and giant bars. Among the principal chocolate and
confectionery products in the United States are: HERSHEY'S COOKIES
'N' MINT chocolate bars, HERSHEY'S HUGS chocolates, HERSHEY'S HUGS
WITH ALMONDS chocolates, HERSHEY'S KISSES chocolates, HERSHEY'S
KISSES WITH ALMONDS chocolates, HERSHEY'S milk chocolate bars,
HERSHEY'S milk chocolate bars with almonds, HERSHEY'S MINIATURES
chocolate bars, HERSHEY'S NUGGETS chocolates, AMAZIN' FRUIT gummy bears
fruit candy, BAR NONE candy bars, CADBURY'S CREME EGGS candy, CARAMELLO
candy bars, KIT KAT wafer bars, LUDEN'S throat drops, MR. GOODBAR milk
chocolate bars with peanuts, PETER PAUL ALMOND JOY candy bars,
PETER PAUL MOUNDS candy bars, REESE'S crunchy peanut butter cups,
REESE'S NUTRAGEOUS candy bars, REESE'S peanut butter cups, REESE'S PIECES
candies, ROLO caramels in milk chocolate, SKOR toffee bars, SYMPHONY milk
chocolate bars, TWIZZLERS candy, WHATCHAMACALLIT candy bars, YORK peppermint
pattie candy, and 5TH AVENUE candy bars.
Principal products in Canada include CHIPITS chocolate chips,
GLOSETTE chocolate-covered raisins, peanuts and almonds, LIFE
SAVERS candy, OH HENRY! candy bars, PLANTERS nuts, POT OF GOLD
boxed chocolates, REESE PEANUT BUTTER CUPS candy, and TWIZZLERS
candy.
The Corporation also markets in the United States a line of
grocery products in the baking, beverage, peanut butter and
toppings categories. Principal products include HERSHEY'S baking
chocolate, HERSHEY'S baking chips, HERSHEY'S chocolate drink boxes,
HERSHEY'S chocolate milk mix, HERSHEY'S cocoa, HERSHEY'S CHOCOLATE
SHOPPE toppings, HERSHEY'S HOT COCOA COLLECTION hot cocoa mix,
HERSHEY'S syrup, REESE'S peanut butter, and REESE'S peanut butter
baking chips. HERSHEY'S chocolate milk is produced and sold under
license by over 20 independent dairies throughout the United
States, using a chocolate milk mix manufactured by the Corporation.
During the fall of 1994, the Corporation discontinued its line of
HERSHEY'S chocolate bar flavor puddings because the business did
not meet expected profit objectives.
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The Corporation's chocolate, confectionery and grocery products
are sold primarily to grocery wholesalers, chain grocery stores,
candy distributors, mass merchandisers, chain drug stores, vending
companies, wholesale clubs, convenience stores, concessionaires and
food distributors by full-time sales representatives, food brokers
and part-time retail sales merchandisers throughout the United
States and Canada. The Corporation also manufactures, imports, markets,
sells and distributes chocolate products in Mexico under the HERSHEY'S brand
name. These products are sold through chain grocery stores, food
distributors, and wholesale clubs. The Corporation believes its
chocolate and confectionery products are sold in over 2 million
retail outlets in North America. In 1994, sales to Wal-Mart Stores, Inc.
and Subsidiaries amounted to approximately 10% of total net sales.
The Corporation manufactures, markets, sells and distributes
high-quality assorted pralines and seasonal chocolate products in
Germany under the GUBOR brand name which are sold directly to
retailers. Additionally, the Corporation imports, markets, sells
and distributes selected HERSHEY'S chocolate and confectionery
products in the Japanese market. In Italy, the Corporation
manufactures, markets, sells, and distributes various confectionery
and nougat products under several brand names including DONDI,
FRESH CLUB, GALATINE, GNAMMY, SCARAMELLINI, and SPERLARI. In the
Netherlands and Belgium, the Corporation manufactures and sells
chocolate and confectionery products, cookies, biscuits, and ice
cream. These products are sold primarily under private labels, but
products are also marketed and sold under the JAMIN brand name.
The Corporation manufactures and sells quality pasta products
throughout the United States. The Corporation markets its products
on a regional basis under several brand names, including AMERICAN
BEAUTY, IDEAL BY SAN GIORGIO, LIGHT 'N FLUFFY, MRS. WEISS, P&R,
RONZONI, SAN GIORGIO, and SKINNER, as well as certain private
labels. These products are sold through chain grocery stores,
grocery wholesalers, wholesale clubs, convenience stores and food
distributors.
The Corporation's marketing strategy is based upon the
consistently superior quality of its products, mass distribution
and the best possible consumer value in terms of price and weight.
In addition, the Corporation devotes considerable resources to the
identification, development, testing, manufacturing and marketing
of new products. The Corporation utilizes a variety of promotional
programs for customers and advertising and promotional programs for
consumers. The Corporation employs promotional programs at various
times during the year to stimulate sales of
certain products. Chocolate, confectionery and grocery seasonal
and holiday related sales have typically been highest during the
third and fourth quarters of the year.
The Corporation recognizes that the mass distribution of its
consumer food products is an important element in maintaining sales
growth and providing service to its customers. The Corporation
attempts to meet the changing demands of its customers by planning
optimum stock levels and reasonable delivery times consistent with
achievement of economies of distribution. To achieve these
objectives, the Corporation has developed a distribution network
from its manufacturing plants, distribution centers and field
warehouses strategically located throughout the United States,
Canada and Mexico. The Corporation uses a combination
of public and contract carriers to deliver its products from the
distribution points to its customers. In conjunction with sales
and marketing efforts, the distribution system has been
instrumental in the effective promotion of new, as well as
established, products on both national and regional scales.
From time to time the Corporation has changed the prices and
weights of its consumer food products to accommodate changes in the
cost of manufacturing, including the cost of raw materials; the
competitive environment; and profit objectives, while at the same
time maintaining consumer value. As a result of higher semolina
costs, the Corporation implemented a price increase averaging 4%
during the first quarter of 1994 on its pasta products and curtailed
certain promotional allowances.
The most significant raw material used in the production of the
Corporation's chocolate products is cocoa beans. This commodity is
imported principally from West African, South American and Far
Eastern equatorial regions. West Africa accounts for approximately
60% of the world's crop. Cocoa beans are not uniform, and the
various grades and varieties reflect the diverse agricultural
practices and natural conditions found in the many growing areas.
The Corporation buys a mix of cocoa beans to meet its manufacturing
requirements.
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The table below sets forth annual average cocoa prices as well as
the highest and lowest monthly averages for each of the calendar
years indicated. The prices are the monthly average of the
quotations at noon of the three active futures trading contracts
closest to maturity on the New York Coffee, Sugar and Cocoa
Exchange. Because of the Corporation's forward purchasing
practices discussed below, and premium prices paid for certain
varieties of cocoa beans, these average futures contract prices are
not necessarily indicative of the Corporation's average cost of
cocoa beans or cocoa products.
Cocoa Futures Contract Prices
(cents per pound)
1990 1991 1992 1993 1994
Annual Average. . . . . . 55.5 52.8 47.6 47.3 59.1
High. . . . . . . . . . . 63.5 60.0 56.2 56.7 66.1
Low . . . . . . . . . . . 43.6 45.6 41.3 41.8 51.3
Source: International Cocoa Organization Quarterly Bulletin of
Cocoa Statistics
The price of sugar, the Corporation's second most important
commodity for its domestic chocolate and confectionery products, is
subject to price supports under farm legislation. Due to import
quotas and duties imposed to support the price of sugar established
by that legislation, sugar prices paid by United States users are
currently substantially higher than prices on the world sugar
market. The average wholesale list price of refined sugar, F.O.B.
Northeast, has remained relatively stable in a range of $.28 to $.31
per pound for the past ten years.
Other raw materials purchased in substantial quantities for
domestic manufacturing purposes include milk, peanuts, and almonds.
The price of milk is affected by Federal Marketing Orders and the
prices of milk and peanuts are affected by price support programs
administered by the United States Department of Agriculture. The
Food, Agriculture, Conservation, and Trade Act of 1990, which is a
five-year extension of prior farm legislation, was passed by
Congress in October 1990. While this law is not substantially
different from the previous farm legislation, it continues to have
an impact on the price of sugar, peanuts and milk because it sets
price support levels for these and other commodities.
During the first quarter of 1994, domestic milk prices averaged
well above the prior year's levels, as a result of significantly
lower milk production in Minnesota and Wisconsin. With more
favorable weather conditions and bumper crops, milk production
began increasing during the second quarter, resulting in lower
prices during the last half of the year.
Peanut prices were moderately higher through the first quarter of
1994 as a result of a lower than average 1993 crop harvest.
However, prices decreased through the last three quarters due to a
declining demand for domestic peanuts, favorable crop forecasts and
an excellent 1994 harvest.
Domestic almond prices during the early part of 1994 remained at
historically high levels due to low stocks and a below average
yield from the 1993 crop. By mid-year, market prices began to
decline as a result of an excellent 1994 harvest.
Pasta is made from semolina milled from durum wheat, a class of
hard wheat grown in the United States and Canada. The Corporation
purchases semolina from commercial mills and is also engaged in a
custom milling agreement to obtain sufficient quantities of
semolina. In 1994, the Corporation's semolina costs per
pound were the highest since 1981. The exceptionally high costs
resulted from short supplies caused by a poor harvest in 1993,
combined with United States Government tariffs on imports of
Canadian wheat. The tariffs are scheduled to end in September
1995, but could be extended by the United States Government.
The Corporation attempts to minimize the effect of price
fluctuations related to the purchase of its major raw materials
primarily through the forward purchasing of such commodities to
cover future manufacturing requirements generally for periods
ranging from 3 to 24 months. With regard to cocoa and sugar, price
risks are also managed by entering into futures and options
contracts. At the present time, similar futures and options
contracts are not
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available for use in pricing the Corporation's other major raw materials.
Futures contracts are used in combination with forward purchasing of cocoa
and sugar requirements principally to take advantage of market fluctuations
which provide more favorable pricing opportunities and to increase diversity
or flexibility in sourcing these raw materials. The Corporation's
commodity procurement practices are intended to reduce the risk of
future price increases, but also may potentially limit the
Corporation's ability to benefit from possible price decreases.
The primary effect on liquidity from using futures contracts is
associated with margin requirements related to cocoa and sugar
futures. Cash outflows and inflows result from original margins
which are "good faith deposits" established by the New York Coffee,
Sugar and Cocoa Exchange to ensure that market participants will
meet their contractual financial obligations. Additionally,
variation margin payments and receipts are required when the value
of open positions is adjusted to reflect daily price movements.
The magnitude of such cash inflows and outflows is dependent upon
price coverage levels and the volatility of the market.
Historically, cash flows related to margin requirements have not
been material to the Corporation's total working capital
requirements.
The Corporation manages the purchase of forward and futures
contracts by developing and monitoring procurement strategies for
each of its major commodities. These procurement strategies,
including the use of futures contracts to hedge the pricing of
cocoa and sugar, are directly linked to the overall planning and
management of the Corporation's business, since the cost of raw
materials account for a significant portion of the cost of finished
goods. Procurement strategies with regard to cocoa, sugar and
other major raw material requirements are developed by the analysis
of fundamentals, including weather and crop analysis, and by
discussions with market analysts, brokers and dealers. Procurement
strategies are determined, implemented and monitored on a regular
basis by senior management. Procurement activities for all major
commodities are also reported to the Board of Directors on a
regular basis.
The Corporation has license agreements with several companies to
manufacture and/or sell products worldwide. Among the more
significant are agreements with Cadbury Beverages Inc. and
affiliated companies to manufacture and/or market and distribute
PETER PAUL ALMOND JOY and PETER PAUL MOUNDS confectionery products
worldwide as well as YORK, CADBURY and CARAMELLO confectionery
products in the United States. The Corporation's rights under
these agreements are extendable on a long-term basis at the
Corporation's option. The license for CADBURY and CARAMELLO
products is subject to a minimum sales requirement which the
Corporation exceeded in 1994. The Corporation also has an
agreement with Societe des Produits Nestle SA, which licenses the
Corporation to manufacture and distribute in the United States the
KIT KAT and ROLO confectionery products. The Corporation's rights
under this agreement are extendable on a long-term basis at the
Corporation's option, subject to certain conditions, including
minimum unit volume sales. In 1994, the minimum volume
requirements were exceeded.
Competition
Many of the Corporation's brands enjoy wide consumer acceptance
and are among the leading brands sold in the marketplace. However,
these brands are sold in highly competitive markets and compete
with many other multinational, national, regional and local firms,
some of which have resources in excess of those available to the
Corporation.
Trademarks
The Corporation has various registered and unregistered
trademarks, service marks and licenses which are of material
importance to the Corporation's business.
Backlog of Orders
The Corporation manufactures primarily for stock and fills
customer orders from finished goods inventories. While at any
given time there may be some backlog of orders, such backlog is not
material in respect to total sales, nor are the changes from time
to time significant.
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Research and Development
The Corporation engages in considerable research activities.
These principally involve development of new products, improvement
in the quality of existing products, improvement and modernization
of production processes, and the development and implementation of
new technologies to enhance the quality and value of both current
and proposed product lines.
Regulation
The Corporation's domestic plants are subject to inspection by
the Food and Drug Administration and various other governmental
agencies, and its products must comply with regulations under the
Federal Food, Drug and Cosmetic Act and with various comparable
state statutes regulating the manufacturing and marketing of food
products.
Environmental Considerations
In the past the Corporation has made investments based on
compliance with environmental laws and regulations. Such
expenditures have not been material with respect to the
Corporation's capital expenditures, earnings or competitive
position.
Employees
As of December 31, 1994, the Corporation had approximately 14,000
full-time and 1,600 part-time employees, of whom approximately
6,000 were covered by collective bargaining agreements. The
Corporation considers its employee relations to be good.
Item 2. PROPERTIES
The following is a list of the Corporation's principal
manufacturing properties. The Corporation owns each of these
properties.
UNITED STATES
Hershey, Pennsylvania - Confectionery Products (3 principal plants)
Lancaster, Pennsylvania - Confectionery Products
Oakdale, California - Confectionery Products
Stuarts Draft, Virginia - Confectionery Products
Winchester, Virginia - Pasta Products
CANADA
Smiths Falls, Ontario - Confectionery and Snack Nut Products
In addition to the locations indicated above, the Corporation
owns or leases several other less significant properties used for
manufacturing confectionery and pasta products, sales, distribution
and administrative functions.
The Corporation's plants are efficient and well maintained.
These plants generally have adequate capacity and can accommodate
seasonal demands, changing product mixes and certain additional
growth. The largest plant is located in Hershey, Pennsylvania.
Many additions and improvements have been made to this facility
over the years and the plant's manufacturing equipment includes
equipment of the latest type and technology.
Item 3. LEGAL PROCEEDINGS
The Corporation has no material pending legal proceedings, other
than ordinary routine litigation incidental to its business.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
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PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Information concerning the principal United States trading
market for, market prices of and dividends on the Corporation's
Common Stock and Class B Common Stock, and the approximate number
of stockholders, may be found in the section "Market Prices and
Dividends" on pages 16 and 17 of the Corporation's 1994 Annual
Report to Stockholders, which information is incorporated herein by
reference and reproduced herein as Exhibit 13.
Item 6. SELECTED FINANCIAL DATA
The following information, for the five years ended December 31,
1994, found in the section "Eleven-Year Consolidated Financial
Summary" on the inside back cover of the Corporation's 1994 Annual
Report to Stockholders, is incorporated herein by reference and
reproduced herein as Exhibit 13: Net Sales; Income from Continuing
Operations Before Accounting Changes; Income Per Share from
Continuing Operations Before Accounting Changes (excluding Notes g,
h and i); Dividends Paid on Common Stock (and related Per Share
amounts); Dividends Paid on Class B Common Stock (and related Per
Share amounts); Long-term Portion of Debt; and Total Assets.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The section "Management's Discussion and Analysis", found on
pages 15 through 17 and 19, 21 and 23 of the Corporation's 1994 Annual
Report to Stockholders, is incorporated herein by reference and reproduced
herein as Exhibit 13.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following audited consolidated financial statements of the
Corporation and its subsidiaries are found at the indicated pages
in the Corporation's 1994 Annual Report to Stockholders, and such
financial statements, along with the report of the independent
public accountants thereon, are incorporated herein by reference
and reproduced herein as Exhibit 13.
1. Consolidated Statements of Income for the years ended
December 31, 1994, 1993 and 1992. (Page 18)
2. Consolidated Statements of Cash Flows for the years ended
December 31, 1994, 1993 and 1992. (Page 20)
3. Consolidated Balance Sheets as of December 31, 1994 and 1993.
(Page 22)
4. Consolidated Statements of Stockholders' Equity for the years
ended December 31, 1994, 1993 and 1992. (Pages 24 and 25)
5. Notes to Consolidated Financial Statements (Pages 26 through
36), including "Quarterly Data (Unaudited)." (Page 36)
6. Report of Independent Public Accountants. (Page 37)
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Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The names, ages, positions held with the Corporation, periods of
service as a director, principal occupations, business experience,
and other directorships of nominees for director of the Corporation
are set forth in the section "Election of Directors" in the
Corporation's Proxy Statement for its 1995 Annual Meeting of
Stockholders. Reporting of an inadvertent late filing of a
Securities and Exchange Commission Form 4 under Section 16 of the
Securities Exchange Act of 1934, as amended, is set forth in the
Section "Compliance with Section 16 of the Securities Exchange Act"
of the Corporation's Proxy Statement for its 1995 Annual Meeting of
Stockholders. All of the above information is incorporated herein
by reference.
Executive Officers of the Corporation as of February 28, 1995
Name Age Positions Held During the Last
Five Years
CORPORATE
K. L. Wolfe 56 Chairman of the Board and Chief
Executive Officer (1993);
President and Chief Operating
Officer (1985)
J. P. Viviano 56 President and Chief Operating
Officer (1993); President,
Hershey Chocolate U.S.A., a
division of Hershey Foods
Corporation (1985)
W. F. Christ 54 Senior Vice President and Chief
Financial Officer (1994);
President, Hershey International,
a division of Hershey Foods
Corporation (1988)
C. L. Duncan 55 Vice President, Research and
Development (1981)
T. C. Fitzgerald 55 Vice President and Treasurer
(1990); Treasurer (1985)
R. M. Garrabrant 42 Controller and Chief Accounting
Officer (1994); Director, Mergers
and Acquisitions (1990);
Director, Corporate Financial
Planning & Analysis (1987)
S. A. Lambly 54 Vice President, Human Resources
(1989)
R. M. Reese 45 Vice President and General
Counsel (1993); Assistant General
Counsel (1987)
B. L. Zoumas 52 Vice President, Science and
Technology (1992); Vice
President, Technical, Hershey
Chocolate U.S.A. (1990); Vice
President, Science and Technology
(1981)
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Executive Officers of the Corporation
Name Age Positions Held During the Last
Five Years
DIVISION
R. Brace 51 Vice President, Manufacturing,
Hershey Chocolate North America,
a division of Hershey Foods Corporation
(1995); Vice President,
Manufacturing, Hershey Chocolate
U.S.A. (1987)
J. F. Carr 50 President, Hershey International
(1994); Vice President,
Marketing, Hershey Chocolate
U.S.A. (1984)
F. Cerminara 46 Vice President, Procurement,
Hershey Chocolate North America
(1995); Vice President,
Commodities Procurement, Hershey
Chocolate U.S.A. (1994); Vice
President, Corporate Development
and Commodities (1988)
D. N. Eshleman 40 General Manager, Hershey Grocery,
a division of Hershey Foods
Corporation (1994); Director,
Marketing, Hershey Chocolate
U.S.A. (1988)
M. H. Holmes 50 Vice President and General
Manager, Chocolate Confectionery,
Hershey Chocolate U.S.A. (1994);
General Manager, Grocery, Hershey
Chocolate U.S.A. (1989)
M. T. Matthews 48 Vice President, Sales, Hershey
Chocolate U.S.A. (1989)
R. W. Meyers 51 President and General Manager,
Hershey Canada Inc., a subsidiary
of Hershey Foods Corporation
(1995); President, Hershey Canada
Inc. (1990); Acting President,
Hershey Canada Inc. (1989)
M. F. Pasquale 47 President, Hershey Chocolate
North America (1995);
President, Hershey Chocolate
U.S.A. (1994); Senior Vice
President and Chief Financial
Officer (1988)
C. M. Skinner 61 President, Hershey Pasta Group,
a division of Hershey Foods
Corporation (1984)
There are no family relationships among any of the above-named
officers of the Corporation.
Corporate Officers and Division Presidents are generally elected
each year at the organization meeting of the Board of Directors
following the Annual Meeting of Stockholders in April.
Item 11. EXECUTIVE COMPENSATION
Information concerning compensation of the five most highly
compensated executive officers, including the Chairman of the Board
and Chief Executive Officer, of the Corporation individually, and
compensation of directors, is set forth in the sections "1994
Executive Compensation" and "Compensation of Directors" in the
Corporation's Proxy Statement for its 1995 Annual Meeting of
Stockholders. This information is incorporated herein by
reference.
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Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Information concerning ownership of the Corporation's voting
securities by certain beneficial owners, individual nominees for
directors, and by management, including the five most highly
compensated executive officers, is set forth in the section "Voting
Securities" in the Corporation's Proxy Statement for its 1995
Annual Meeting of Stockholders. This information is incorporated
herein by reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information concerning "Certain Relationships and Related
Transactions" is set forth in the section "Certain Transactions and
Relationships" in the Corporation's Proxy Statement for its 1995
Annual Meeting of Stockholders. This information is incorporated
herein by reference.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
Item 14(a)(1): Financial Statements
The audited consolidated financial statements of the Corporation
and its subsidiaries and the Report of Independent Public
Accountants thereon, as required to be filed with this report, are
set forth in Item 8 of this report and are incorporated therein by
reference to specific pages of the Corporation's 1994 Annual Report
to Stockholders and reproduced herein as Exhibit 13.
Item 14(a)(2): Financial Statement Schedule
The following consolidated financial statement schedule of the
Corporation and its subsidiaries for the years ended December 31,
1994, 1993 and 1992 is filed herewith on the indicated page in
response to Item 14(d):
Schedule II -- Valuation and Qualifying Accounts (Page 15)
Other schedules have been omitted as not applicable or required,
or because information required is shown in the consolidated
financial statements or notes thereto.
Financial statements of the parent corporation only are omitted
because the Corporation is primarily an operating corporation and
there are no significant restricted net assets of consolidated and
unconsolidated subsidiaries.
Item 14(a)(3): Exhibits
The following items are attached or incorporated by reference in
response to Item 14(c):
(3) Articles of Incorporation and By-laws
The Corporation's Restated Certificate of Incorporation, as
amended, is incorporated by reference from Exhibit No. 3 to
the Corporation's Quarterly Report on Form 10-Q for the quarter
ended April 3, 1988. The By-laws, as amended on December 3,
1991, are incorporated by reference from Exhibit No. 3 to the
Corporation's Annual Report on Form 10-K for the fiscal year
ended December 31, 1991.
(4) Instruments defining the rights of security holders,
including indentures
The Corporation has issued certain long-term debt instruments,
no one class of which creates indebtedness exceeding 10% of
the total assets of the Corporation and its subsidiaries on a
consolidated basis. These classes consist of the following:
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<PAGE> 10
a. 8.45% to 9.92% Medium-Term Notes due 1994-1998
b. 8.8% Debentures due 2021
c. Other Obligations
The Corporation will furnish copies of the above debt
instruments to the Commission upon request.
In 1993 the Corporation called and redeemed its 9.5% Sinking
Fund Debentures due 2009 and its 9.125% Sinking Fund Debentures
due 2016.
(10) Material contracts
a. After Eight, Kit Kat, and Rolo License Agreement (License
Agreement) between Hershey Foods Corporation and Rowntree
Mackintosh Confectionery Limited is incorporated by
reference from Exhibit No. 10(a) to the Corporation's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1980. The License Agreement was amended in
1988 and the Amendment Agreement is incorporated by
reference from Exhibit No. 19 to the Corporation's
Quarterly Report on Form 10-Q for the quarter ended July
3, 1988. The License Agreement was assigned by Rowntree
Mackintosh Confectionery Limited to Societe des Produits
Nestle SA as of January 1, 1990. The Assignment Agreement
is incorporated by reference from Exhibit No. 19 to the
Corporation's Annual Report on Form 10-K for the fiscal
year ended December 31, 1990.
b. Peter Paul/York Domestic Trademark & Technology License
Agreement between Hershey Foods Corporation and Cadbury
Schweppes Inc. (now Cadbury Beverages Inc.) dated August
25, 1988, is incorporated by reference from Exhibit No.
2(a) to the Corporation's Current Report on Form 8-K dated
September 8, 1988.
c. Cadbury Trademark & Technology License Agreement among
Hershey Foods Corporation and Cadbury Schweppes Inc. (now
Cadbury Beverages Inc.) and Cadbury Limited dated August
25, 1988, is incorporated by reference from Exhibit No.
2(a) to the Corporation's Current Report on Form 8-K dated
September 8, 1988.
Executive Compensation Plans:
d. The 1987 Key Employee Incentive Plan, as amended, is attached
hereto as Exhibit No. 19(i).
e. Hershey Foods Corporation's Restated Supplemental Executive
Retirement Plan is attached hereto as Exhibit No. 19(ii).
f. Hershey Foods Corporation's Non-Management Director
Retirement Plan is incorporated by reference from Exhibit
No. 19 to the Corporation's Quarterly Report on Form 10-Q
for the quarter ended March 29, 1992.
g. Hershey Foods Corporation's Deferral Plan for Non-
Management Directors is incorporated by reference from
Exhibit No. 10 to the Corporation's Annual Report on Form
10-K for the fiscal year ended December 31, 1992.
h. A form of the Benefit Protection Agreements entered into
between the Corporation and certain of its executive
officers is attached hereto as Exhibit No. 10.
(12) Computation of ratio of earnings to fixed charges statement
A computation of ratio of earnings to fixed charges for the
years ended December 31, 1994, 1993, 1992, 1991, and 1990 is
attached as Exhibit No. 12.
<PAGE>
<PAGE> 11
(13) Annual report to security holders
The financial section of the Corporation's 1994 Annual Report
to Stockholders is attached as Exhibit No. 13.
(21) Subsidiaries of the Registrant
A list setting forth subsidiaries of the Corporation is
attached as Exhibit No. 21.
Item 14(b): Reports on Form 8-K
No reports on Form 8-K have been filed during the last quarter
of the period covered by this report.
<PAGE>
<PAGE> 12
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Corporation has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
HERSHEY FOODS CORPORATION
(Registrant)
Date: March 6, 1995 By W. F. CHRIST
(W. F. Christ, Senior Vice President
and Chief Financial Officer)
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the Corporation and in the capacities and on the date
indicated.
Signature Title Date
K. L. WOLFE Chief Executive Officer March 6, 1995
(K. L. Wolfe) and Director
W. F. CHRIST Chief Financial Officer March 6, 1995
(W. F. Christ)
R. M. GARRABRANT Chief Accounting Officer March 6, 1995
(R. M. Garrabrant)
J. P. VIVIANO Director March 6, 1995
(J. P. Viviano)
H. O. BEAVER, JR. Director March 6, 1995
(H. O. Beaver, Jr.)
T. C. GRAHAM Director March 6, 1995
(T. C. Graham)
B. GUITON HILL Director March 6, 1995
(B. Guiton Hill)
J. C. JAMISON Director March 6, 1995
(J. C. Jamison)
<PAGE>
<PAGE> 13
Signature Title Date
S. C. MOBLEY Director March 6, 1995
(S. C. Mobley)
F. I. NEFF Director March 6, 1995
(F. I. Neff)
R. J. PERA Director March 6, 1995
(R. J. Pera)
J. M. PIETRUSKI Director March 6, 1995
(J. M. Pietruski)
V. A. SARNI Director March 6, 1995
(V. A. Sarni)
<PAGE>
<PAGE> 14
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE
To Hershey Foods Corporation:
We have audited, in accordance with generally accepted auditing
standards, the consolidated financial statements included in
Hershey Foods Corporation's 1994 annual report to stockholders
incorporated by reference in this Form 10-K, and have issued our
report thereon dated January 27, 1995. Our audit was made for the
purpose of forming an opinion on those statements taken as a whole.
The schedule listed in Item 14(a)(2) on page 9 is the
responsibility of the Corporation's management and is presented for
purposes of complying with the Securities and Exchange Commission's
rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in
the audit of the basic financial statements and, in our opinion,
fairly states in all material respects the financial data required
to be set forth therein in relation to the basic financial
statements taken as a whole.
ARTHUR ANDERSEN LLP
New York, N.Y.
January 27, 1995
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our reports dated January 27, 1995, included or
incorporated by reference in this Form 10-K for the year ended
December 31, 1994, into the Corporation's previously filed
Registration Statements on Forms S-8 or S-3 (File No. 33-35062,
File No. 33-45431, File No. 33-45556 and File No. 33-51089).
ARTHUR ANDERSEN LLP
New York, N.Y.
March 6, 1995
<PAGE>
<PAGE> 15
<TABLE>
Schedule II
HERSHEY FOODS CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended December 31, 1994, 1993 and 1992
<CAPTION>
(in thousands of dollars)
Additions
Balance at Charged to Charged Deductions Balance
Beginning Costs and to Other from at End
Description of Period Expenses Accounts(a) Reserves of Period
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1994:
Reserves deducted in the
balance sheet from the assets
to which they apply:
Accounts Receivable - Trade $12,479 $3,144 $(1,016) $ (635) $13,972
Year Ended December 31, 1993:
Reserves deducted in the
balance sheet from the assets
to which they apply:
Accounts Receivable - Trade $10,437 $3,371 $ 107 $(1,436) $12,479
Year Ended December 31, 1992:
Reserves deducted in the
balance sheet from the assets
to which they apply:
Accounts Receivable - Trade $9,476 $4,812 $ 113 $(3,964) $10,437
</TABLE>
(a) Includes recoveries of amounts previously written off.
<PAGE>
<PAGE> 16
HERSHEY FOODS CORPORATION ANNUAL REPORT ON FORM 10-K
Index to Exhibits
Exhibit No.
10 -- Benefits Protection Agreements
12 -- Computation of ratio of earnings to
fixed charges statement
13 -- Financial section of 1994 Annual Report
to Stockholders
19.i -- The 1987 Key Employee Incentive Plan, as amended
19.ii -- Hershey Foods Corporation's Restated
Supplemental Executive Retirement Plan
21 -- Subsidiaries of the Registrant
27 -- Financial Data Schedule for the period ended
December 31, 1994.
(Required for electronic filing only.)
<PAGE>
Exhibit 10
AGREEMENT
THIS AGREEMENT dated as of August 2, 1994, is
made by and between Hershey Foods Corporation, a
Delaware corporation (the "Company"), and
_____________________ (the "Executive").
WHEREAS the Company considers it essential to
the best interests of its stockholders to foster the
continuous employment of key management personnel; and
WHEREAS the Board of Directors of the Company
(the "Board") recognizes that the possibility of a
Change in Control (as defined in the last Section
hereof) exists, as in the case of any publicly-held
corporation, and that such possibility, and the
uncertainty and questions which it may raise among
management, may result in the departure or distraction
of management personnel to the detriment of the Company
and its stockholders; and
WHEREAS the Board has determined that
appropriate steps should be taken to reinforce and
encourage the continued attention and dedication of
members of the Company's management, including the
Executive, to their assigned duties without distraction
in the face of potentially disturbing circumstances
arising from the possibility of a Change in Control;
NOW THEREFORE, in consideration of the premises
and the mutual covenants herein contained, the Company
and the Executive hereby agree as follows:
1 Defined Terms. The definitions of
capitalized terms used in this Agreement are provided
in the last Section and elsewhere in this Agreement.
2 Term of Agreement. This Agreement shall
commence on the date hereof and shall remain in effect
thereafter; provided, however, that (a) either the
Company or the Executive may terminate this Agreement
by giving the other advance written notice of
termination of the Agreement as of such date as
specified in the notice (except that no such notice may
be given by the Company after a Potential Change in
Control occurs and for a one-year period following the
cessation of a Potential Change in Control), and (b) if
a Change in Control shall have occurred during the term
of this Agreement, this Agreement shall continue in
effect until all obligations of either party hereto
have been performed in full. Notwithstanding the
foregoing: (a) this Agreement shall terminate upon the
<PAGE>
<PAGE> 2
Executive's attaining age sixty-five (65), except as to
obligations of the Company hereunder arising from a
Change in Control and/or a termination of the
Executive's employment prior to his having reached such
age; and (b) no termination of this Agreement by the
Company shall be effective if such termination occurs
(i) at the request of a third party who has taken steps
reasonably calculated to effect a Change in Control, or
(ii) in connection with or in anticipation of a Change
in Control. In the event that the termination of this
Agreement by the Company occurs within two (2) months
prior to a Potential Change in Control or a Change in
Control, there shall be a presumption that the
conditions of subclauses (i) and (ii) of clause (b) of
the immediately preceding sentence shall have been met.
3 Company's Covenants Summarized. In order to
induce the Executive to remain in the employ of the
Company and in consideration of the Executive's
covenants set forth in Section 4 hereof, the Company
agrees, under the terms and conditions set forth
herein, that, upon a Change in Control during the term
of this Agreement, certain benefits shall thereupon
become vested as set forth in Section 5 hereof, and
paid in accordance with the provisions thereof, and, in
the event that the Executive's employment with the
Company is terminated thereafter during the Coverage
Period, the Company shall pay the Executive the amounts
provided for in Section 6 hereof.
4 The Executive's Covenant. The Executive
agrees that, subject to the terms and conditions of
this Agreement, in the event of a Potential Change in
Control, the Executive will remain in the employ of the
Company until the earliest of (a) a date which is nine
(9) months after the date of such Potential Change of
Control, (b) the date of a Change in Control, (c) the
date of termination by the Executive of the Executive's
employment for Good Reason (determined by treating the
Potential Change in Control for this purpose as a
Change in Control in applying the definition of Good
Reason) or by reason of death or Disability, (d) the
termination by the Company of the Executive's
employment for any reason, or (e) the Executive's
attaining age sixty-five (65).
5 Vesting or Payment of Certain Benefits in the
Event of a Change in Control
5.1 Vesting of AIP Benefits; Payment of
Benefits. Upon the occurrence of a Change in Control,
the Executive shall have a vested and nonforfeitable
<PAGE>
<PAGE> 3
right hereunder to receive in cash an amount equal to
the sum of (a) the greater of (A) the 100% target award
amount of all then outstanding contingent target AIP
grants made to the Executive under the KEIP, and
(B) the amount that would have been payable to the
Executive under such contingent target AIP grants as of
the end of the applicable award period, calculated
utilizing as the applicable performance factors the
actual performance of the Executive and the Company on
an annualized basis as of the date of the Change in
Control, and (b) the value of all AIP Awards, as
defined in the KEIP ("AIP Awards"), previously earned
by the Executive for which payment has been deferred
(the sum of (a) and (b) is herein referred to as the
"Vested Bonus Amount"). Unless the Change in Control
is a Section 9.21 Change in Control, the Company shall,
within five (5) business days following the Change in
Control, pay to the Executive a lump sum cash payment
equal to the Executive's Vested Bonus Amount. If the
Change in Control is a Section 9.21 Change in Control,
the Executive's Vested Bonus Amount shall be promptly
paid to the Executive at the end of the applicable
award period or deferral period, except as otherwise
provided in Section 6.1(C) hereof.
5.2 Vesting of PSU Benefits; Payment of
Benefits. Upon the occurrence of a Change in Control,
the Executive shall have a vested and nonforfeitable
right hereunder to receive in cash an amount equal to
the sum of: (a) the 100% target award amount of all
then outstanding contingent target Performance Stock
Unit ("PSU") grants made to the Executive under the
KEIP valued at the higher of (i) the highest closing
price of the Company's Common Stock on the New York
Stock Exchange during the sixty (60) day period
preceding and including the date of the Change in
Control, and (ii) if the Change in Control involves a
transaction in which an offer is made to purchase
shares of Common Stock from the Company's stockholders,
the price at which such offer is made; and (b) the
value of all PSU Awards, as defined in the KEIP ("PSU
Awards"), previously earned by the Executive for which
payment has been deferred, including the value of cash
dividends thereon (the sum of (a) and (b) is herein
referred to as the "Vested PSU Amount"). Unless the
Change in Control is a Section 9.21 Change in Control,
the Company shall, within five (5) business days
following the Change in Control, pay to the Executive a
lump sum cash payment equal to the Executive's Vested
PSU Amount. If the Change in Control is a Section 9.21
Change in Control, the Executive's Vested PSU Amount
shall be promptly paid to the Executive at the end of
<PAGE>
<PAGE> 4
each applicable performance cycle or deferral period,
except as otherwise provided in Section 6.1(D) hereof.
5.3 SERP Benefits
(a) Upon the occurrence of a Change in
Control, the Executive shall have a vested and
nonforfeitable right hereunder to receive in cash an
amount equal to the actuarial present value (as
determined in accordance with Section 5.3(e) hereof) of
the monthly retirement benefit (including the spousal
survivor benefit) to which the Executive (and his
spouse) would be entitled under Paragraph 4 of the SERP
if the Executive retired as of the date of the Change
in Control, taking into account Sections 5.3(c) and
5.3(d) hereof (the amount of such monthly retirement
benefit being herein referred to as the Executive's
"SERP Benefit" and the actuarial present value of such
SERP Benefit being herein referred to as the
Executive's "Vested Pension Benefit").
(b) Unless the Change in Control is a
Section 9.21 Change in Control, the Company shall,
within five (5) business days following the Change in
Control, pay to the Executive in cash the Executive's
Vested Pension Benefit in a single sum. If the Change
in Control is a Section 9.21 Change in Control, then
upon the subsequent termination of the Executive's
employment by the Company and its Subsidiaries for any
reason, the Company shall pay to the Executive in
accordance with Sections 6.1 and 6.4 the Executive's
"Adjusted Vested Pension Benefit." The Executive's
"Adjusted Vested Pension Benefit" shall be equal to the
actuarial present value (as determined in accordance
with Section 5.3(e) hereof) of the monthly retirement
benefit (including the spousal survivor benefit) to
which the Executive (and his spouse) would be entitled
under Paragraph 4 of the SERP if the Executive retired
as of the Executive's Date of Termination, taking into
account Sections 5.3(c) and 5.3(d) hereof (the amount
of such monthly retirement benefit being herein
referred to as the Executive's "Adjusted SERP
Benefit").
(c) For purposes of determining the
Executive's SERP Benefit as of the date of a Change in
Control or the Executive's Adjusted SERP Benefit as of
the Executive's Date of Termination (in the case of a
Section 9.21 Change in Control), the Executive shall:
(i) be credited with additional years of Service (as
defined in the SERP) for purposes of clause (1) of
paragraphs 4.a. and 4.b. of the SERP equal to the
<PAGE>
<PAGE> 5
lesser of three (3) or the number of years (including
fractions thereof) from the date of the Change in
Control (or the Executive's Date of Termination in the
case of a Section 9.21 Change in Control) until the
Executive would attain age sixty-five (65) and for all
other purposes under the SERP equal to the excess, if
any, of ten (10) over the actual number of years
(including fractions thereof) of Service completed by
the Executive as of the date of the Change in Control
(or the Executive's Date of Termination in the case of
a Section 9.21 Change in Control); (ii) be deemed to
have five (5) years of participation in the PSU portion
of the LTIP (as defined in the SERP) regardless of his
actual years of participation in the PSU portion of the
LTIP at the time of the Change in Control (or the
Executive's Date of Termination in the case of a
Section 9.21 Change in Control); (iii) be deemed to
have his age increased by three (3) years (or such
lesser number of years (including fractions) until the
Executive would attain age sixty-five (65)) for all
purposes under the SERP (including but not limited to
the reduction factor prescribed by clause 4 of
Paragraph 4.b. of the SERP); and (iv) be deemed to have
been paid his Annual Base Salary and Annual Bonus for
three (3) additional years (or such lesser number of
years (including fractions) until the Executive would
attain age sixty-five (65)) for purposes of calculating
"Final Average Compensation" in paragraph 2.e. of the
SERP.
(d) Other than for purposes of clauses (2),
(3) and (4) of Paragraph 4.b. of the SERP, if the
Executive has not yet attained age fifty-five (55)
(after increasing the Executive's age by three (3)
years as provided in the preceding Section 5.3(c)), the
Executive shall upon the occurrence of the Change in
Control (or the Executive's Date of Termination in the
case of a Section 9.21 Change in Control) be deemed
nevertheless to have attained age fifty-five (55).
(e) The actuarial present value of the
Executive's SERP Benefit or Adjusted SERP Benefit, as
applicable, as determined in accordance with the
foregoing provisions of this Section 5.3 shall be
determined using: (i) the 83 GAM mortality tables; and
(ii) an interest rate equal to 100% of the interest
rate that would be used (as of the date of the Change
in Control or as of the date of the Executive's Date of
Termination if payment is made upon termination of
employment after a Section 9.21 Change in Control) by
the Pension Benefit Guaranty Corporation for purposes
<PAGE>
<PAGE> 6
of determining the present value of a lump sum
distribution on plan termination.
(f) Notwithstanding any provision of the
SERP, the SERP may not be terminated or amended in any
manner that is adverse to the interests of the
Executive without the consent of the Executive either:
(i) after a Potential Change in Control occurs and for
one (1) year following the cessation of the Potential
Change in Control, or (ii) after a Change in Control.
Any termination or amendment of the SERP in a manner
adverse to the interests of the Executive within one
year prior to a Potential Change in Control shall not
be given effect for purposes of this Section 5.3.
(g) The Executive may, in his sole
discretion, elect to receive hereunder in lieu of his
Vested Pension Benefit or his Adjusted Vested Pension
Benefit, as applicable, his SERP Benefit or Adjusted
SERP Benefit, as applicable, in any optional or
alternative form of payment that a participant who has
satisfied all applicable eligibility requirements under
the SERP is entitled to elect under the SERP. Any such
election by the Executive pursuant to this Section
5.3(g) must be made at least ninety (90) days prior to
the date that the Executive's Vested Pension Benefit or
Adjusted Vested Pension Benefit, as applicable, would
otherwise be payable.
6 Benefits and Rights upon Termination of
Employment
6.1 General Termination Rights and Benefits.
If the Executive's employment by the Company is
terminated after a Change in Control for any reason
(whether by the Company or the Executive), the Company
shall pay to the Executive the payments described in
Subsections (A) through (E) below.
(A) Previously Earned Salary. The Company
shall pay the Executive's full salary to the Executive
through the Date of Termination at the highest rate in
effect during the period between the Potential Change
in Control preceding the Change in Control and the date
the Notice of Intent to Terminate is given, together
with all compensation and benefits payable to the
Executive through the Date of Termination under the
terms of any compensation or benefit plan, program or
arrangement maintained by the Company during such
period.
<PAGE>
<PAGE> 7
(B) Previously Earned Benefits. The
Company shall pay the Executive's normal
post-termination compensation and benefits to the
Executive as such payments become due. Such
post-termination compensation and benefits shall be
determined under, and paid in accordance with, the
Company's retirement, insurance, pension, welfare and
other compensation or benefit plans, programs and
arrangements.
(C) Payment of Vested Bonus Amounts.
Except to the extent that the Company has previously
paid to the Executive all or a portion of his Vested
Bonus Amount pursuant to Section 5.1 hereof, the
Company shall pay to the Executive a lump sum cash
payment equal to the Executive's Vested Bonus Amount.
(D) Payment of Vested PSU Amounts. Except
to the extent that the Company has previously paid to
the Executive all or a portion of his Vested PSU Amount
pursuant to Section 5.2 hereof, the Company shall pay
to the Executive a lump sum cash payment equal to the
Executive's Vested PSU Amount.
(E) Payment of Vested Pension Benefit.
Except to the extent the Company has previously paid to
the Executive the Executive's Vested Pension Benefit as
provided in Section 5.3(b) hereof, the Company shall
pay to the Executive a lump sum cash payment equal to
the Executive's Adjusted Vested Pension Benefit.
6.2 Severance Benefits. In addition to the
payments provided for by Section 6.1 hereof, the
Company shall pay to the Executive the payments
described in Subsections (A) through (D) below (the
"Severance Benefits") upon termination of the
Executive's employment with the Company during the
Coverage Period, unless such termination is (a) by the
Company for Cause, (b) by reason of the Executive's
death or Disability, (c) after the Executive attains
age sixty-five (65), or (d) by the Executive without
Good Reason.
(A) Lump-Sum Severance Payment. In lieu of
any further salary payments to the Executive for
periods subsequent to the Date of Termination, the
Company shall pay to the Executive a lump sum severance
payment, in cash, equal to three (3) (or, if less, the
number of years, including fractions, from the Date of
Termination until the Executive would have reached age
sixty-five (65)) times the sum of (a) the Executive's
<PAGE>
<PAGE> 8
Annual Base Salary and (b) the Executive's Annual
Bonus.
(B) Continued Benefits. For a thirty-six
(36) month period (or, if less, the number of months
from the Date of Termination until the Executive would
have reached age sixty-five (65)) after the Date of
Termination, the Company shall provide the Executive
with life insurance, health, disability and other
welfare benefits ("Welfare Benefits") substantially
similar in all respects to those which the Executive is
receiving immediately prior to the Notice of
Termination (without giving effect to any reduction in
such benefits subsequent to the Potential Change in
Control preceding the Change in Control or the Change
in Control which reduction constitutes or may
constitute Good Reason). Benefits otherwise receivable
by an Executive pursuant to this Section 6.2(B) shall
be reduced to the extent substantially similar benefits
are actually received by or made available to the
Executive by any other employer during the same time
period for which such benefits would be provided
pursuant to this Section 6.2(B) at a cost to the
Executive that is commensurate with the cost incurred
by the Executive immediately prior to the Executive's
Date of Termination (without giving effect to any
increase in costs paid by the Executive after the
Potential Change in Control preceding the Change in
Control or the Change in Control which constitutes or
may constitute Good Reason); provided, however, that if
the Executive becomes employed by a new employer which
maintains a medical plan that either (i) does not cover
the Executive or a family member or dependent with
respect to a preexisting condition which was covered
under the applicable Company medical plan, or (ii) does
not cover the Executive or a family member or dependent
for a designated waiting period, the Executive's
coverage under the applicable Company medical plan
shall continue (but shall be limited in the event of
noncoverage due to a preexisting condition, to such
preexisting condition) until the earlier of the end of
the applicable period of noncoverage under the new
employer's plan or the third anniversary of the
Executive's Date of Termination. The Executive agrees
to report to the Company any coverage and benefits
actually received by the Executive or made available to
the Executive from such other employer(s). The
Executive shall be entitled to elect to change his
level of coverage and/or his choice of coverage options
(such as Executive only or family medical coverage)
with respect to the Welfare Benefits to be provided by
the Company to the Executive to the same extent that
<PAGE>
<PAGE> 9
actively employed senior executives of the Company are
permitted to make such changes; provided, however, that
in the event of any such changes the Executive shall
pay the amount of any cost increase that would actually
be paid by an actively employed executive of the
Company by reason of making the same change in his
level of coverage or coverage options.
(C) Outstanding Awards. If the Executive's
Date of Termination occurs within the Coverage Period
and during any calendar year following the calendar
year during which a Change in Control occurs, the
Executive shall be entitled to a lump sum cash payment
with respect to each outstanding contingent target PSU
and AIP grant under the KEIP (or any similar types of
grants under any replacement plan or program) equal to
the sum of: (i) the product of (x) and (y), where (x)
is an amount equal to the 100% target award amount of
all then outstanding contingent target PSU grants under
the KEIP (or similar types of grants under any
replacement plan or program) for the applicable award
period that includes the Executive's Date of
Termination, and (y) is a fraction the numerator of
which is the number of days from and including the
first day of the applicable award period that includes
the Executive's Date of Termination until (and
including) the Executive's Date of Termination and the
denominator of which is the number of days in the
applicable award period; and (ii) the product of (x)
and (y), where (x) is an amount equal to the greater of
(A) the 100% target award amount of all then
outstanding contingent target AIP grants made to the
Executive under the KEIP (or similar types of grants
under any replacement plan or program), and (B) the
amount that would have been payable to the Executive
under such contingent target AIP grants as of the end
of the applicable award period, calculated utilizing as
the applicable performance factors the actual
performance of the Executive and the Company on an
annualized basis as of the Executive's Date of
Termination, and (y) is a fraction the numerator of
which is the number of days from and including the
first day of the applicable award period that includes
the Executive's Date of Termination until (and
including) the Executive's Date of Termination and the
denominator of which is the number of days in the
applicable award period. Contingent PSU grants under
the KEIP or a similar type of grant under a replacement
plan or program shall be valued at the highest closing
price of the Company's Common Stock on the New York
Stock Exchange during the sixty (60) day period
<PAGE>
<PAGE> 10
preceding and including the Executive's Date of
Termination.
(D) Relocation Allowance. The Company
shall pay to the Executive a relocation allowance of
$75,000; provided, however, that any such payment shall
be reduced by any payments received by the Executive
from any successor employer for the purpose of
reimbursing the Executive for costs of relocation. The
Executive agrees to report to the Company any such
payments from any successor employer and agrees to
reimburse to the Company any amounts received from the
Company pursuant to this Section 6.2(D) that should
have been so reduced.
6.3 Gross-Up Payment. In the event that the
Executive becomes entitled to the Severance Benefits or
any other benefits or payments under this Agreement
(other than pursuant to this Section 6.3.) or the KEIP
by reason of the accelerated vesting of stock options
thereunder (together, the "Total Benefits"), and in the
event that any of the Total Benefits will be subject to
the Excise Tax, the Company shall pay to the Executive
an additional amount (the "Gross-Up Payment") such that
the net amount retained by the Executive, after
deduction of any Excise Tax on the Total Benefits and
any federal, state and local income tax, Excise Tax and
FICA and Medicare withholding taxes upon the payment
provided for by this Section 6.3, shall be equal to the
Total Benefits.
For purposes of determining whether any of the
Total Benefits will be subject to the Excise Tax and
the amount of such Excise Tax, (i) any other payments
or benefits received or to be received by the Executive
in connection with a Change in Control or the
Executive's termination of employment (whether pursuant
to the terms of this Agreement or any other agreement,
plan or arrangement with the Company, any Person whose
actions result in a Change in Control or any Person
affiliated with the Company or such Person) shall be
treated as "parachute payments" within the meaning of
Section 280G(b)(2) of the Code, and all "excess
parachute payments" within the meaning of Section
280G(b)(1) shall be treated as subject to the Excise
Tax, unless in the opinion of tax counsel ("Tax
Counsel") selected by the Company's independent
auditors and acceptable to the Executive, such other
payments or benefits (in whole or in part) do not
constitute parachute payments, or such excess parachute
payments (in whole or in part) represent reasonable
compensation for services actually rendered within the
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<PAGE> 11
meaning of Section 280G(b)(4) of the Code in excess of
the Base Amount, or are otherwise not subject to the
Excise Tax, (ii) the amount of the Total Benefits which
shall be treated as subject to the Excise Tax shall be
equal to the lesser of (A) the total amount of the
Total Benefits reduced by the amount of such Total
Benefits that in the opinion of Tax Counsel are not
parachute payments, or (B) the amount of excess
parachute payments within the meaning of Section
280G(b)(1) (after applying clause (i), above), and
(iii) the value of any non-cash benefits or any
deferred payment or benefit shall be determined by the
Company's independent auditors in accordance with the
principles of sections 280G(d)(3) and (4) of the Code.
For purposes of determining the amount of the Gross-Up
Payment, the Executive shall be deemed to pay federal
income taxes at the highest marginal rate of federal
income taxation in the calendar year in which the
Gross-Up Payment is to be made and state and local
income taxes at the highest marginal rate of taxation
in the state and locality of the Executive's residence
on the Date of Termination, net of the reduction in
federal income taxes which could be obtained from
deduction of such state and local taxes (calculated by
assuming that any reduction under Section 68 of the
Code in the amount of itemized deductions allowable to
the Executive applies first to reduce the amount of
such state and local income taxes that would otherwise
be deductible by the Executive).
In the event that the Excise Tax is subsequently
determined to be less than the amount taken into
account hereunder at the time of termination of the
Executive's employment, the Executive shall repay to
the Company, at the time that the amount of such
reduction in Excise Tax is finally determined, the
portion of the Gross-Up Payment attributable to such
reduction (plus that portion of the Gross-Up Payment
attributable to the Excise Tax, federal, state and
local income taxes and FICA and Medicare withholding
taxes imposed on the portion of the Gross-Up Payment
being repaid by the Executive to the extent that such
repayment results in a reduction in Excise Tax, FICA
and Medicare withholding taxes and/or federal, state or
local income taxes) plus interest on the amount of such
repayment at the rate provided in Section 1274(b)(2)(B)
of the Code. In the event that the Excise Tax is
determined to exceed the amount taken into account
hereunder at the time of the termination of the
Executive's employment (including by reason of any
payment the existence or amount of which cannot be
determined at the time of the Gross-Up Payment), the
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<PAGE> 12
Company shall make an additional Gross-Up Payment,
determined as previously described, to the Executive in
respect of such excess (plus any interest, penalties or
additions payable by the Executive with respect to such
excess) at the time that the amount of such excess is
finally determined.
6.4 Timing of Payments. The payments provided
for in Sections 6.1 through 6.3 (other than
Section 6.2(B) hereof) shall be made not later than the
fifth (5th) day following the Date of Termination;
provided, however, that if the amounts of such payments
cannot be finally determined on or before such day, the
Company shall pay to the Executive on such day an
estimate, as determined in good faith by the Company,
of the minimum amount of such payments and shall pay
the remainder of such payments (together with interest
at the rate provided in Section 1274(b)(2)(B) of the
Code from the fifth (5th) day following the Date of
Termination to the payment of such remainder) as soon
as the amount thereof can be determined but in no event
later than the thirtieth (30th) day after the Date of
Termination. In the event that the amount of the
estimated payments exceeds the amount subsequently
determined to have been due, such excess shall
constitute a loan by the Company to the Executive,
payable on the fifth (5th) business day after demand by
the Company (together with interest at the rate
provided in Section 1274(b)(2)(B) of the Code from the
fifth (5th) day following the Date of Termination to
the repayment of such excess).
6.5 Reimbursement of Legal Costs. The Company
shall pay to the Executive all legal fees and expenses
incurred by the Executive as a result of a termination
which entitles the Executive to any payments under this
Agreement including all such fees and expenses, if any,
incurred in contesting or disputing any Notice of
Intent to Terminate under Section 7.3 hereof or in
seeking to obtain or enforce any right or benefit
provided by this Agreement or in connection with any
tax audit or proceeding to the extent attributable to
the application of Section 4999 of the Code to any
payment or benefit provided hereunder. Such payments
shall be made within five (5) business days after
delivery of the Executive's respective written requests
for payment accompanied by such evidence of fees and
expenses incurred as the Company reasonably may
require.
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7 Termination Procedures and Compensation
During Dispute
7.1 Notice of Intent To Terminate. After a
Change in Control, any purported termination of the
Executive's employment (other than by reason of death)
must be preceded by a written Notice of Intent to
Terminate from one party hereto to the other party
hereto in accordance with Section 8.6 hereof. For
purposes of this Agreement, a "Notice of Intent to
Terminate" shall mean a notice which shall indicate the
notifying party's opinion regarding the specific
provisions of this Agreement that will apply upon such
termination and shall set forth in reasonable detail
the facts and circumstances claimed to provide a basis
for the application of the provisions indicated.
Further, a Notice of Intent to Terminate for Cause is
required to include a copy of a resolution duly adopted
by the affirmative vote of not less than three-quarters
(3/4) of the entire membership of the Board at a
meeting of the Board which was called and held for the
purpose of considering such termination (after
reasonable notice to the Executive and an opportunity
for the Executive, together with the Executive's
counsel, to be heard before the Board) finding that, in
the good faith opinion of the Board, the Executive was
guilty of conduct set forth in clause (a) or (b) of the
definition of Cause herein, and specifying the
particulars thereof in detail.
7.2 Date of Termination. "Date of
Termination", with respect to any purported termination
of the Executive's employment after a Change in
Control, shall mean (except as provided in Section 7.3
hereof) (a) if the Executive's employment is terminated
for Disability, thirty (30) days after Notice of Intent
to Terminate is given (provided that the Executive
shall not have returned to the full-time performance of
the Executive's duties during such thirty (30) day
period), and (b) if the Executive's employment is
terminated for any other reason, the date specified in
the Notice of Intent to Terminate (which (i) in the
case of a termination by the Company, shall not be less
than thirty (30) days, except in the case of a
termination for Cause in which case it shall not be
less than ten (10) days, provided that the Company may
require the Executive not to report to work during such
ten (10) day period and (ii) in the case of a
termination by the Executive, shall not be less than
fifteen (15) days nor more than sixty (60) days,
respectively, from the date such Notice of Intent to
Terminate is given).
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<PAGE> 14
7.3 Dispute Concerning Termination. If within
fifteen (15) days after any Notice of Intent to
Terminate is given, or, if later, prior to the Date of
Termination (as determined without regard to this
Section 7.3), the party receiving such Notice of Intent
to Terminate notifies the other party that a dispute
exists concerning the termination or the provisions of
this Agreement that apply to such termination, the Date
of Termination shall be the date on which the dispute
is finally resolved, either by mutual written agreement
of the parties or by a final judgment, order or decree
of a court of competent jurisdiction (which is not
appealable or with respect to which the time for appeal
therefrom has expired and no appeal has been
perfected); provided, however, that the Date of
Termination shall be extended by a notice of dispute
only if such notice is given in good faith and the
party giving such notice pursues the resolution of such
dispute with reasonable diligence.
7.4 Compensation During Dispute. If a
purported termination occurs following a Change in
Control and such termination or the provisions of this
Agreement that apply upon such termination is disputed
in accordance with Section 7.3 hereof (including a
dispute as to the existence of good faith and/or
reasonable diligence thereunder), the Company shall
continue to pay the Executive the full compensation
(including, but not limited to, salary) at the
Executive's Annual Base Salary and continue his
participation in all compensation plans required to be
maintained hereunder and continue to provide to the
Executive the Welfare Benefits provided for in Section
6.2(B) hereof until the dispute is finally resolved in
accordance with Section 7.3 hereof. Amounts paid under
this Section 7.4 are in addition to all other amounts
due under this Agreement (other than those due under
Section 6.1(A) hereof) and shall not be offset against
or reduce any other amounts due under this Agreement.
8 Miscellaneous
8.1 No Mitigation. The Company agrees that, if
the Executive's employment by the Company is terminated
during the Coverage Period, the Executive is not
required to seek other employment or to attempt in any
way to reduce any amounts payable to the Executive by
the Company pursuant to this Agreement. Further, the
amount of any payment or benefit provided for under
this Agreement (other than to the extent provided in
Section 6.2(B) and Section 6.2(D)) shall not be reduced
by any compensation earned by the Executive as the
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<PAGE> 15
result of employment by another employer, by retirement
benefits, by offset against any amount claimed to be
owed by the Executive to the Company, or otherwise.
8.2 Successors. In addition to any obligations
imposed by law upon any successor to the Company, the
Company shall be obligated to require any successor
(whether direct or indirect, by purchase, merger,
consolidation, operation of law, or otherwise) to all
or substantially all of the business and/or assets of
the Company to expressly assume and agree to perform
this Agreement in the same manner and to the same
extent that the Company would be required to perform it
if no such succession had taken place. Failure of the
Company to obtain such assumption and agreement prior
to the effectiveness of any such succession shall be a
breach of this Agreement and shall entitle the
Executive to compensation and benefits from the Company
in the same amount and on the same terms as the
Executive would be entitled to hereunder if the
Executive were to terminate the Executive's employment
for Good Reason during the Coverage Period.
8.3 Terminations in Anticipation of Change in
Control. The Executive's employment shall be deemed to
have been terminated by the Company without Cause
during the Coverage Period if the Executive's
employment is terminated by the Company without Cause
prior to a Change in Control and such termination of
employment (a) was at the request of a third party who
has taken steps reasonably calculated to effect a
Change in Control, or (b) otherwise arose in connection
with or in anticipation of a Change in Control. The
Executive's employment shall be deemed to have been
terminated by the Executive for Good Reason during the
Coverage Period if the Executive terminates his
employment with Good Reason prior to a Change in
Control if the circumstance or event which constitutes
Good Reason (a) occurs at the request of a third party
who has taken steps reasonably calculated to effect a
Change in Control or (b) otherwise arose in connection
with or in anticipation of a Change in Control. In the
event of a termination of employment described in this
Section 8.3, the Executive shall be entitled to all
payments and other benefits to which the Executive
would have been entitled had such termination occurred
during the Coverage Period (other than salary pursuant
to Section 6.1(A) hereof for any period after the
actual date of termination) and the Executive shall be
entitled to an additional payment in an amount which
shall compensate the Executive to the extent that the
Executive was deprived by such termination of the
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<PAGE> 16
opportunity prior to termination of employment to
exercise stock options granted to him under the KEIP at
the highest market price of the Company's Common Stock
reached in connection with the Change in Control or
Potential Change in Control if a Potential Change in
Control shall occur and not be followed by a Change in
Control within twelve (12) months of the Potential
Change in Control. In the event that the termination
of employment of the Executive as described in this
Section 8.3 occurs following a Potential Change in
Control or within two (2) months prior to a Change in
Control, there shall be a presumption that clauses (a)
and (b) of the first two sentences of this Section 8.3
shall have been met.
8.4 Incompetency. Any benefit payable to or
for the benefit of the Executive, if legally
incompetent, or incapable of giving a receipt therefor,
shall be deemed paid when paid to the Executive's
guardian or to the party providing or reasonably
appearing to provide for the care of such person, and
such payment shall fully discharge the Company.
8.5 Death. This Agreement shall inure to the
benefit of and be enforceable by the Executive's
personal or legal representatives, executors,
administrators, successors, heirs, distributees,
devisees and legatees. If the Executive shall die
while any amount would still be payable to the
Executive hereunder (other than amounts which, by their
terms, terminate upon the death of the Executive) if
the Executive had continued to live, all such amounts,
unless otherwise provided herein, shall be paid in
accordance with the terms of this Agreement to the
executors, personal representatives or administrators
of the Executive's estate.
8.6 Notices. For the purpose of this
Agreement, notices and all other communications
provided for in the Agreement shall be in writing and
shall be deemed to have been duly given when delivered
or mailed by United States registered mail, return
receipt requested, postage prepaid, addressed to the
respective addresses set forth below, or to such other
address as either party may have furnished to the other
in writing in accordance herewith, except that notice
of change of address shall be effective only upon
actual receipt:
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<PAGE> 17
To the Company:
Hershey Foods Corporation
100 Crystal A Drive
Hershey, PA 17033-0810
Attention:
Chairman of the Board
To the Executive:
At the address listed on the first page
hereof.
8.7 Modification, Waiver. No provision of this
Agreement may be modified, waived or discharged unless
such waiver, modification or discharge is agreed to in
writing and signed by the Executive and such officer as
may be specifically designated by the Board. No waiver
by either party hereto at any time of any breach by the
other party hereto of, or compliance with, any
condition or provision of this Agreement to be
performed by such other party shall be deemed a waiver
of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time.
8.8 Entire Agreement. No agreements or
representations, oral or otherwise, express or implied,
with respect to the subject matter hereof have been
made by either party which are not expressly set forth
in this Agreement.
8.9 Governing Law. The validity,
interpretation, construction and performance of this
Agreement shall be governed by the laws of the State of
Delaware.
8.10 Statutory Changes. All references to
sections of the Exchange Act or the Code shall be
deemed also to refer to any successor provisions to
such sections.
8.11 Withholding. Any payments provided for
hereunder shall be paid net of any applicable
withholding required under federal, state or local law
and any additional withholding to which the Executive
has agreed.
8.12 Validity. The invalidity or
unenforceability or any provision of this Agreement
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<PAGE> 18
shall not affect the validity or enforceability of any
other provision of this Agreement, which shall remain
in full force and effect.
8.13 No Right to Continued Employment. Nothing
in this Agreement shall be deemed to give the Executive
the right to be retained in the employ of the Company,
or to interfere with the right of the Company to
discharge the Executive at any time and for any lawful
reason, subject in all cases to the terms of this
Agreement.
8.14 No Assignment of Benefits. Except as
otherwise provided herein or by law, no right or
interest of the Executive under the Agreement shall be
assignable or transferable, in whole or in part, either
directly or by operation of law or otherwise, including
without limitation by execution, levy, garnishment,
attachment, pledge or in any manner; no attempted
assignment or transfer thereof shall be effective; and
no right or interest of the Executive under this
Agreement shall be liable for, or subject to, any
obligation or liability of the Executive.
8.15 Burden. In any proceeding (regardless of
who initiates such proceeding) in which the payment of
Severance Benefits or other compensation or benefits
under this Agreement is at issue, the burden of proof
as to whether Cause exists for purposes of this
Agreement shall be upon the Company.
8.16 Reduction of Benefits By Legally Required
Benefits. Notwithstanding any other provision of this
Agreement to the contrary, if the Company is obligated
by law or by contract (other than under this Agreement)
to pay severance pay, a termination indemnity, notice
pay, or the like, or if the Company is obligated by law
or by contract to provide advance notice of separation
("Notice Period"), then any Severance Benefits
hereunder shall be reduced by the amount of any such
severance pay, termination indemnity, notice pay or the
like, as applicable, and by the amount of any pay
received during any Notice Period; provided, however,
that the period following a Notice of Intent to
Terminate shall not be considered a Notice Period.
8.17 Consent to Cancellation of Awards. The
Company may condition the payment to the Executive of
his Vested Bonus Amount and/or his Vested PSU Amount
under this Agreement upon the Executive's providing a
written consent to the cancellation of the contingent
target AIP and PSU grants and/or the AIP and PSU Awards
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<PAGE> 19
for which payment has been deferred on which the
Executive's Vested Bonus Amount and/or Vested PSU
Amount is based and in lieu of which such amounts are
paid.
8.18 Consent to Reduction of SERP Benefit. The
Company may condition the payment to the Executive of
his Vested Pension Benefit or his Adjusted Vested
Pension Benefit under this Agreement or the providing
of any benefit or payment under Section 5.3(g) hereof
upon the Executive's providing a written consent to the
reduction of his monthly benefit to be paid under the
SERP, such reduction to be in the amount of the SERP
Benefit or Adjusted SERP Benefit, as applicable, which
was used in the calculation of the Executive's Vested
Pension Benefit or Adjusted Vested Pension Benefit or
the amount of any payments or benefits provided under
Section 5.3(g) hereof.
8.19 Employment by or Transfer to Subsidiary.
In the event that the Executive is employed by or
transferred to a Subsidiary, the Company agrees that
this Agreement shall be amended in such manner as may
be necessary or appropriate to ensure that this
Agreement provides or continues to provide the
Executive with the benefits and protections intended to
be provided hereby.
8.20 Headings. The headings and captions
herein are provided for reference and convenience only,
shall not be considered part of the Agreement, and
shall not be employed in the construction of the
Agreement.
9 Definitions
9.1 "AIP" means the Annual Incentive Program
under the KEIP.
9.2 "Annual Base Salary" means the higher of
(a) the Executive's highest annual base salary in
effect during the one (1) year period preceding a
Change in Control, or (b) the Executive's highest
annual base salary in effect during the one year period
preceding the Executive's Date of Termination. For
purposes of the foregoing, salary reduction elections
pursuant to Sections 125 and 401(k) of the Code shall
not be taken into account.
9.3 "Annual Bonus" means the highest of (a) the
average of the three highest bonuses paid or payable,
including any bonus or portion thereof which has been
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<PAGE> 20
earned but deferred, to the Executive by the Company in
respect of the five fiscal years (or such shorter
period during which the Executive has been employed by
the Company) immediately preceding the fiscal year in
which a Change in Control occurs (annualized for any
fiscal year during such period consisting of less than
twelve full months or with respect to which the
Executive has been employed by the Company for less
than twelve full months), (b) the bonus paid or payable
(annualized as described above), including any bonus or
portion thereof which has been earned but deferred, to
the Executive by the Company in respect of the most
recently completed fiscal year prior to the Change in
Control, (c) the bonus paid or payable (annualized as
described above), including any bonus or portion
thereof which has been earned or deferred, for the most
recently completed fiscal year preceding the
Executive's Date of Termination, and (d) 100% of the
Executive's target bonus award amount for the year
including the Executive's Date of Termination. For
purposes herein, only payments under the AIP (as well
as payments under any substitute plan or program) shall
be treated as bonus payments.
9.4 "Base Amount" shall have the meaning
ascribed to such term in Section 280G(b)(3) of the
Code.
9.5 "Board" means the Board of Directors of the
Company.
9.6 "Cause" means:
(a) the willful and continued failure of
the Executive to substantially perform the Executive's
duties with the Company (other than any such failure
resulting from incapacity due to physical or mental
illness), after a written demand for substantial
performance is delivered to the Executive by the Board
or the Chief Executive Officer of the Company which
specifically identifies the manner in which the Board
or Chief Executive Officer believes that the Executive
has not substantially performed the Executive's duties;
or
(b) the willful engaging by the Executive
in illegal conduct or gross misconduct which is
materially and demonstrably injurious to the Company.
For purposes of the preceding clauses (a) and (b), no
act or failure to act, on the part of the Executive,
shall be considered "willful" unless it is done, or
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<PAGE> 21
omitted to be done, by the Executive in bad faith and
without reasonable belief that the Executive's action
or omission was in the best interests of the Company.
Any act, or failure to act, based upon prior approval
given by the Board or upon the instructions or with the
approval of the Chief Executive Officer or the
Executive's superior or based upon the advice of
counsel for the Company shall be conclusively presumed
to be done, or omitted to be done, by the Executive in
good faith and in the best interests of the Company.
The cessation of employment of the Executive shall not
be deemed to be for Cause unless and until there shall
have been delivered to the Executive a copy of a
resolution duly adopted by the affirmative vote of not
less than three-quarters of the entire membership of
the Board at a meeting of the Board called and held for
such purpose (after reasonable notice is provided to
the Executive and the Executive is given an
opportunity, together with counsel, to be heard before
the Board), finding that, in the good faith opinion of
the Board, the Executive is guilty of the conduct
described in clause (a) or (b) above, and specifying
the particulars thereof in detail.
9.7 A "Change in Control" means:
(a) The acquisition or holding by any
Person of beneficial ownership (within the meaning of
Section 13(d) under the Exchange Act and the rules and
regulations promulgated thereunder) of shares of the
Common Stock and/or the Class B Common Stock of the
Company representing 25% or more of either (i) the
total number of then outstanding shares of both Common
Stock and Class B Common Stock of the Company (the
"Outstanding Company Stock") or (ii) the combined
voting power of the then outstanding voting securities
of the Company entitled to vote generally in the
election of directors (the "Outstanding Company Voting
Power"), provided that, at the time of such acquisition
or holding of beneficial ownership of any such shares,
the Hershey Trust does not beneficially own more than
50% of the Outstanding Company Voting Power; and
provided, further, that any such acquisition or holding
of beneficial ownership of shares of either Common
Stock or Class B Common Stock of the Company by any of
the following entities shall not by itself constitute
such a Change in Control hereunder: (i) the Hershey
Trust; (ii) any trust established by the Company or any
Subsidiary for the benefit of the Company and/or its
employees or those of any Subsidiary; or (iii) any
employee benefit plan (or related trust) sponsored or
maintained by the Company or by any Subsidiary; or
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<PAGE> 22
(b) The approval by the stockholders of the
Company of any merger, reorganization,
recapitalization, consolidation or other form of
business combination (a "Business Combination") if,
following consummation of such Business Combination,
the Hershey Trust does not beneficially own more than
50% of the total voting power of all outstanding voting
securities of the surviving entity or entities; or
(c) The approval by the stockholders of the
Company of (i) any sale or other disposition of all or
substantially all of the assets of the Company, other
than to a corporation as to which the Hershey Trust
beneficially owns more than 50% of the total voting
power of all outstanding voting securities, or (ii) a
liquidation or dissolution of the Company.
9.8 "Code" means the Internal Revenue Code of
1986, as amended from time to time.
9.9 "Company" means Hershey Foods Corporation,
a Delaware corporation.
9.10 "Coverage Period" means the period,
commencing on the date on which a Change in Control
occurs and ending on the second anniversary date
thereof.
9.11 "Date of Termination" has the meaning
assigned to such term in Section 7.2 hereof.
9.12 "Disability" means the absence of the
Executive from the Executive's duties with the Company
on a full-time basis for 180 consecutive days as a
result of incapacity due to mental or physical illness
which is determined to be total and permanent by a
physician selected by the Company or its insurers and
acceptable to the Executive or the Executive's legal
representative (such agreement as to acceptability not
to be withheld unreasonably), provided that such
absence shall constitute "Disability" only if the
Executive is entitled to long-term disability benefits
for the period of his disability after such 180 day
period at least equal to 70% of the greater of the
Executive's base salary as of the first day of such 180
day period or his Annual Base Salary. Such requirement
of entitlement to long-term disability benefits shall
not apply in making determinations under Section 4 of
this Agreement.
9.13 "Exchange Act" means the Securities
Exchange Act of 1934, as amended from time to time.
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<PAGE> 23
9.14 "Excise Tax" means any excise tax imposed
under Section 4999 of the Code.
9.15 "Good Reason" means:
(a) the assignment to the Executive of any
duties inconsistent in any respect with the Executive's
position (including status, offices, titles and
reporting relationships), authority, duties or
responsibilities immediately prior to either the
Potential Change in Control which precedes the Change
in Control or the Change in Control or any other action
by the Company which results in a diminution in any
respect in such position, authority, duties or
responsibilities, excluding for this purpose an
isolated, insubstantial and inadvertent action not
taken in bad faith and which is remedied by the Company
promptly after receipt of notice thereof given by the
Executive;
(b) a reduction by the Company in the
Executive's annual base salary as in effect on the date
hereof or as the same may be increased from time to
time;
(c) the failure by the Company to increase
the Executive's base salary each year after a Change in
Control by an amount which at least equals, on a
percentage basis, the mean average percentage increase
in base salary for all officers of the Company during
the two full calendar years immediately preceding the
Change in Control;
(d) the Company's requiring the Executive
to be based at any office or location that is more than
35 miles from the Executive's office or location
immediately prior to either the Potential Change in
Control which precedes the Change in Control or the
Change in Control but only if such change involves a
material increase in the Executive's cost of living and
is not accompanied by a commensurate increase in
compensation and benefits;
(e) the Company's requiring the Executive
to travel on Company business to a substantially
greater extent than required immediately prior to
either the Potential Change in Control which precedes
the Change in Control or the Change in Control;
(f) the failure by the Company, without the
Executive's consent, to pay to the Executive any
portion of the Executive's current compensation, or to
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<PAGE> 24
pay to the Executive any portion of an installment of
deferred compensation under any deferred compensation
program of the Company within seven (7) days of the
date such compensation is due;
(g) the failure by the Company to continue
in effect any compensation plan in which the Executive
participates immediately prior to either the Potential
Change in Control preceding the Change in Control or
the Change in Control which is material to the
Executive's total compensation, including but not
limited to the KEIP and the SERP or any substitute or
alternative plans adopted prior to either such
Potential Change in Control or Change in Control,
unless an equitable arrangement (embodied in an ongoing
substitute or alternative plan) has been made with
respect to such plan, or the failure by the Company to
continue the Executive's participation therein (or in
such substitute or alternative plan) on a basis not
materially less favorable, both in terms of the amount
of benefits provided and the level of the Executive's
participation relative to other participants, as
existed at the time of such Potential Change in Control
or Change in Control;
(h) the failure by the Company to continue
to provide the Executive with benefits substantially
similar to those enjoyed by the Executive under any of
the Company's pension, life insurance, medical, health
and accident, disability or other welfare plans in
which the Executive was participating at the time of
either the Potential Change in Control preceding the
Change in Control or the Change in Control, the taking
of any action by the Company which would directly or
indirectly materially reduce any of such benefits or
deprive the Executive of any material fringe benefit
enjoyed by the Executive at the time of such Potential
Change in Control or Change in Control, or the failure
by the Company to provide the Executive with the number
of paid vacation days to which the Executive is
entitled on the basis of years of service with the
Company in accordance with the Company's normal
vacation policy in effect at the time of such Potential
Change in Control or Change in Control;
(i) any purported termination by the
Company of the Executive's employment after a Change in
Control otherwise than in accordance with the
termination procedures of Sections 7.1 through 7.4
hereof;
<PAGE>
<PAGE> 25
(j) any material failure by the Company to
comply with and satisfy any of its obligations under
this Agreement after a Potential Change in Control that
is followed within one (1) year by a Change in Control;
or
(k) The Company's or its controlling
Person's or any affiliate's, engaging in any act,
practice, or line of business which (x) is illegal, (y)
is unethical or (z) is otherwise inconsistent with the
unique character, culture and/or reputation of the
Company, deriving from its origins and traditions, as
they existed prior to the Change in Control, provided
that any termination by the Executive by reason of the
invocation of clause (z) of this Subsection (k) must be
the subject of a Notice of Intent to Terminate which is
delivered to the Company within 60 days following any
Change in Control described in Subsections 9.7(b) or
(c) and within six months following any Change in
Control described in Subsection 9.7(a).
For purposes of this Agreement, any determination of
Good Reason made by the Executive in good faith shall
be conclusive and binding upon the Company.
9.16 "Hershey Trust" means either or both of
(a) the Hershey Trust Company, a Pennsylvania
corporation, as Trustee for the Milton Hershey School,
or any successor to the Hershey Trust Company as such
trustee, and (b) the Milton Hershey School, a
Pennsylvania not-for-profit corporation.
9.17 "KEIP" means the Hershey Foods Corporation
1987 Key Employee Incentive Plan and any successor or
replacement plan thereof.
9.18 "Notice of Intent to Terminate" shall have
the meaning assigned to such term in Section 7.1
hereof.
9.19 "Person" shall have the meaning given in
Section 3(a)(9) of the Exchange Act, as modified and
used in Section 13(d)(3) thereof.
9.20 "Potential Change in Control" means the
occurrence of any of the following:
(a) The Hershey Trust, or any Person acting
or purporting to act on its (or their) behalf, makes a
public announcement that it (or they), or its (or
their) Board of Directors or Board of Managers or any
other responsible official, (i) intends to take, (ii)
<PAGE>
<PAGE> 26
is taking or (iii) has taken actions which would lead
to a Change in Control (a "public announcement" being
defined for this purpose as any statement quoted or
otherwise reported in any print, broadcast, wire
service or other means of publication available to the
public in any locality in which any employee of the
Company is regularly located);
(b) The Hershey Trust enters into any
contract, agreement or other arrangement with any
Person which would lead to a Change in Control; or
(c) The Board approves a transaction
described in subsection (b) or (c) of the definition of
Change in Control contained in Section 9.7 hereof.
9.21 A "Section 9.21 Change in Control" means a
Change in Control described in subsection (b) of
Section 9.7 hereof which meets the following
conditions: (a) the transaction constituting the
Change in Control was initially proposed by the Board
and was approved in advance by the Board (consisting of
directors two-thirds (2/3) of whom shall have been
serving as directors at the time of the Potential
Change in Control preceding the Change in Control); and
(b) following consummation of such Change in Control,
persons who served as members of the Board prior to
such Change in Control constitute at least 50% of the
board of directors of the surviving entity or entities
following such Change in Control.
9.22 "SERP" means the Hershey Foods Corporation
Supplemental Executive Retirement Plan.
9.23 "Severance Benefits" has the meaning
assigned to such term in Section 6.2 hereof.
9.24 "Subsidiary" means any corporation
controlled by the Company, directly or indirectly.
9.25 "Vested Bonus Amount" shall have the
meaning assigned to such term in Section 5.1 hereof.
9.26 "Vested PSU Amount" shall have the meaning
assigned to such term in Section 5.2 hereof.
<PAGE>
<PAGE> 27
9.27 "Welfare Benefits" shall have the meaning
ascribed to such term in Section 6.2(B) hereof.
IN WITNESS WHEREOF, the Company has caused this
Agreement to be executed by its officer, thereunto duly
authorized, and Executive has executed this Agreement,
all as of the day and year first above written.
HERSHEY FOODS CORPORATION
By__________________________
____________________________
Executive
<TABLE>
<PAGE>
EXHIBIT 12
HERSHEY FOODS CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
For the Years Ended December 31, 1994, 1993, 1992, 1991, and 1990
(in thousands of dollars except for ratios)
(Unaudited)
<CAPTION>
1994 1993 1992 1991 1990
Earnings:
<S> <C> <C> <C> <C> <C>
Income from continuing operations before
income taxes and accounting changes $333,138(a) $510,875(b) $400,988 $363,457 $361,518(d)
Add (Deduct):
Interest on indebtedness 37,249 30,224 29,708 29,269 26,319
Portion of rents representative of the
interest factor(c) 8,556 8,175 7,987 7,785 6,939
Amortization of debt expense 64 84 165 284 270
Amortization of capitalized interest 2,958 2,684 1,988 1,390 1,147
Adjustment for equity companies(d) - - 628 262 (1,258)
Adjustment for majority-owned subsidiary(e) - - 17 (116) (397)
Earnings as adjusted $381,965 $552,042 $441,481 $402,331 $394,538
Fixed Charges:
Interest on indebtedness $37,249 $30,224 $29,708 $29,269 $26,319
Portion of rents representative of the
interest factor(c) 8,556 8,175 7,987 7,785 6,939
Amortization of debt expense 64 84 165 284 270
Capitalized interest 3,009 4,646 12,055 10,386 5,875
Adjustment for 50% equity company(f) - - - 21 47
Total fixed charges $48,878 $43,129 $49,915 $47,745 $39,450
Ratio of earnings to fixed charges 7.81 12.80 8.84 8.43 10.00
</TABLE>
NOTES:
(a) Includes a restructuring charge of $106.1 million.
(b) Includes a gain of $80.6 million on the sale of the Corporation's 18.6%
investment interest in Freia Marabou a.s.
(c) Portion of rents representative of the interest factor consists of one-
third of rental expense for operating leases.
(d) Adjustment for equity companies includes the eliminations from income of
both undistributed earnings and losses of companies in which at least
20% but less than 50% equity is owned. In May 1990, the Corporation
sold its equity interest in AB Marabou resulting in a non-recurring gain
of $60.5 million. In April 1992, the Corporation sold its equity
interest in its Brazilian joint venture.
(e) In December 1992, the Corporation purchased the remaining shares of
Hershey Japan. Prior to the acquisition, the Corporation owned 51% of
Hershey Japan.
(f) In October 1991, the Corporation purchased the shares of Nacional de
Dulces, S.A. de C.V., subsequently renamed Hershey Mexico, S.A. de C.V.
(Hershey Mexico), owned by its joint venture partner, Grupo Carso, S.A.
de C.V. Prior to the acquisition, the Corporation owned 50% of the
outstanding stock of Hershey Mexico.
<PAGE>
<PAGE> Page 15
HERSHEY FOODS CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS - FINANCIAL REVIEW
Summary of Consolidated Operating Results
The Corporation achieved increased sales in 1994 and 1993. Net sales
during this two-year period increased at a compound annual rate of 6%,
primarily reflecting volume growth from new product introductions and
international acquisitions, and pasta price increases. These increases
were offset somewhat by lower sales for existing confectionery brands in
most of the Corporation's domestic and international markets beginning late
in the first quarter of 1993.
Hershey Pasta Group increased wholesale prices and curtailed certain
promotion allowances in late 1993 and early 1994 because of increased
semolina costs. The combined price increases averaged approximately 4%.
During the fourth quarter of 1994, the Corporation recorded a pre-tax
restructuring charge of $106.1 million which reduced net income by $80.2
million. The restructuring charge was the result of a comprehensive review
of domestic and international operations designed to enhance performance of
operating assets by lowering operating and administrative costs,
eliminating underperforming assets and streamlining the overall decision
making process.
Effective January 1, 1993, the Corporation adopted Statements of Financial
Accounting Standards No. 106 "Employers' Accounting for Post-retirement
Benefits Other Than Pensions" (FAS No. 106) and No. 109 "Accounting for
Income Taxes" (FAS No. 109) by means of catch-up adjustments. The net
charge associated with these changes in accounting had the effect of
decreasing net income by approximately $103.9 million, or $1.16 per share.
In March 1993, the Corporation recorded a pre-tax gain of $80.6 million on
the sale of its 18.6% investment interest in Freia Marabou a.s (Freia)
which had the effect of increasing net income by $40.6 million.
Income, excluding the 1994 restructuring charge, increased at a compound
annual rate of 4% during the two-year period. This increase was a result
of the growth in sales, partially offset by a lower gross profit margin
and higher selling, marketing and administrative expenses.
Summary of Financial Position and Liquidity
The Corporation's financial position remained strong during 1994. The
capitalization ratio (total short-term and long-term debt as a percent of
stockholders' equity, short-term and long-term debt) was 25% as of December
31, 1994, and 27% as of December 31, 1993. The ratio of current assets to
current liabilities was 1.2:1 as of December 31, 1994, and 1.1:1 as of
December 31, 1993.
Historically, the Corporation's major source of financing has been cash
generated from operations. Generally, seasonal working capital needs peak
during the summer months and have been met by issuing commercial paper.
During the three-year period ended December 31, 1994, the Corporation's
cash and cash equivalents decreased by $44.4 million. Total debt,
including debt assumed, increased by $114.5 million during this same period
reflecting the financing needs for several business acquisitions and a
share repurchase program.
The Corporation anticipates that capital expenditures will be in the range of
$125 million to $175 million per annum during the next several years as a
result of continued modernization of existing facilities and capacity
expansion to support new products and line extensions. As of December 31, 1994,
the Corporation's principal capital commitments included manufacturing
capacity expansion and modernization.
Gross proceeds from the sale of the Corporation's Freia investment interest
in the amount of $259.7 million were received in April 1993 and a portion
thereof was used for the early repayment of long-term debt.
In the second quarter of 1993, the Corporation's Board of Directors
approved a share repurchase program to acquire from time to time through
open market or privately negotiated transactions up to $200 million of its
Common Stock. A total of 3,451,139 shares has been repurchased under the
program, of which 3,187,139 shares were held as Treasury Stock as of
December 31, 1994.
As of December 31, 1994, $100 million of debt securities remained available
for issuance under a Form S-3 Registration Statement which was declared
effective in June 1990. In November 1993, the Corporation filed another
Form S-3 Registration Statement under which it may offer up to $400 million
of additional debt securities. Proceeds from any offering of the $500
million of debt securities available under these shelf registrations may be
used to reduce existing commercial paper borrowings, finance capital
additions, and fund the share repurchase program and future business
acquisitions.
Acquisitions and Divestiture
Operating results during the period were impacted by the following:
. October 1993 - The purchase of the outstanding shares of Overspecht
B.V. (OZF Jamin). OZF Jamin manufactures chocolate and non-
chocolate confectionery products, cookies, biscuits and ice cream
for distribution primarily to customers in the Netherlands and
Belgium.
. September 1993 - The acquisition of the Italian confectionery
business of Heinz Italia S.p.A. (Sperlari). Sperlari is a leader in
the Italian non-chocolate confectionery market and manufactures and
distributes a wide range of confectionery products, including nougat
and sugar candies. Products are marketed primarily under the
SPERLARI, DONDI and SCARAMELLINI brands.
. March 1993 - The acquisition of certain assets of the Cleveland-area
Ideal Macaroni and Weiss Noodle companies (Ideal/Mrs. Weiss).
<PAGE>
<PAGE> Page 16
. April 1992 - The sale of Hershey do Brasil Participacoes Ltda., a
holding company which owned a 41.7% equity interest in
Petybon S.A., to the Bunge & Born Group. Petybon S.A., located in
Brazil,is a producer of pasta, biscuits and margarine products.
A further discussion of these acquisitions and divestiture can be
found in Note 2 to the consolidated financial statements.
Other Items
The Corporation's net sales, net income and cash flows are affected by the
timing of business acquisitions, new product introductions, promotional
activities, price increases, and a seasonal sales bias toward the second
half of the year. These factors, together with sluggish demand for
existing brands, caused a decline in net sales and net income in the first
quarter of 1994.
The Corporation's most significant raw materials include cocoa, sugar,
milk, peanuts, flour and almonds. The Corporation attempts to minimize the
effect of price fluctuations related to the purchase of these raw materials
primarily through forward purchasing to cover future manufacturing
requirements generally for periods from 3 to 24 months. With regard to
cocoa and sugar, price risks are also managed by entering into futures and
options contracts. At the present time, similar futures and options
contracts are not available for use in pricing the Corporation's other
major raw materials. Futures contracts are used in combination with
forward purchasing of cocoa and sugar requirements principally to take
advantage of market fluctuations which provide more favorable pricing
opportunities and to increase diversity or flexibility in sourcing these
raw materials. The Corporation's commodity procurement practices are
intended to reduce the risk of future price increases, but also may
potentially limit the ability to benefit from possible price decreases.
The cost of cocoa beans and the prices for the related commodity futures
contracts historically have been subject to wide fluctuations attributable
to a variety of factors, including the effect of weather on crop yield,
other imbalances between supply and demand, currency exchange rates and
speculative influences. Cocoa crops for the most recent four years fell
somewhat short of demand resulting in supply deficits. Market prices in
1994 moved higher as a result of the supply deficits and this trend could
continue in 1995 if stocks decline further. The Corporation's costs during
1995 will not necessarily reflect market price fluctuations because of its
forward purchasing practices, premiums and discounts reflective of relative
values, varying delivery times, and supply and demand for specific varieties
and grades of cocoa beans.
The major raw material used in the manufacture of pasta products is
semolina milled from durum wheat. The Corporation purchases semolina from
commercial mills and is also engaged in a custom milling agreement to
obtain sufficient quantities of semolina. In 1994, the Corporation's
semolina costs per pound were the highest since 1981. The exceptionally
high costs resulted from short supplies caused by a poor harvest in 1993,
combined with U.S Government tariffs on imports of Canadian wheat. The
tariff agreement is scheduled to end in September 1995, but could be
extended by the U.S Government.
Generally, the Corporation has been able to offset the effects of increases
in the cost of its major raw materials, particularly cocoa beans, through
selling price increases or reductions in product weights. Conversely,
declines in the cost of major raw materials have served as a source of
funds to maintain selling price stability, enhance consumer value through
increases in product weights, respond to competitive activity, develop new
products and markets, and offset rising costs of other raw materials and
expenses.
Capital Structure
The Corporation has two classes of stock outstanding, Common Stock and
Class B Common Stock (Class B Stock). Holders of the Common Stock and the
Class B Stock generally vote together without regard to class on matters
submitted to stockholders, including the election of directors, with the
Common Stock having one vote per share and the Class B Stock having ten
votes per share. However, the Common Stock, voting separately as a class,
is entitled to elect one-sixth of the Board of Directors. With respect to
dividend rights, the Common Stock is entitled to cash dividends 10% higher
than those declared and paid on the Class B Stock.
The Corporation's Common Stock is listed on the New York Stock Exchange
(NYSE). On December 19, 1994, the Securities and Exchange Commission
approved the previously proposed uniform voting rights policy which has
been adopted by the NYSE, the American Stock Exchange and the National
Association of Securities Dealers. The policy provides that the voting
rights of existing holders of publicly traded common stock cannot be
disparately reduced or restricted through any corporate action or issuance.
Under the policy, the Corporation's and other listed companies' existing
dual class structures have been grandfathered.
Market Prices and Dividends
Cash dividends paid on the Corporation's Common Stock and Class B Stock
were $107.0 million in 1994 and $100.5 million in 1993. The annual
dividend rate on the Common Stock is $1.30 per share, an increase of 8%
over the 1993 rate of $1.20 per share. The 1994 dividend represented the
20th consecutive year of Common Stock dividend increases.
On February 7, 1995, the Corporation's Board of Directors declared a
quarterly dividend of $.325 per share of Common Stock payable on March 15,
1995, to stockholders of record as of February 24, 1995. It is the
Corporation's 261st consecutive Common Stock dividend. A quarterly
dividend of $.295 per share of Class B Stock also was declared.
Hershey Foods Corporation's Common Stock is listed and traded principally
on the NYSE under the ticker symbol "HSY." Approximately 31.3 million shares
of the Corporation's Common Stock were traded during 1994.
<PAGE>
<PAGE> Page 17
The closing price of the Common Stock on December 31, 1994, was $48-3/8.
The Class B Stock is not publicly traded. There were 34,327 stockholders
of record of the Common Stock and the Class B Stock as of
December 31, 1994.
The following table shows the dividends paid per share of Common Stock and
Class B Stock and the price range of the Common Stock for each quarter of
the past two years:
Dividends Paid Common Stock
Per Share Price Range*
Common Class B
Stock Stock High Low
1994
1st Quarter $ .300 $ .2725 $53-1/2 $45-3/4
2nd Quarter .300 .2725 46-3/4 41-5/8
3rd Quarter .325 .2950 48 41-1/8
4th Quarter .325 .2950 49-5/8 44-1/2
Total $1.250 $1.1350
1993
1st Quarter $ .270 $ .2450 $55-7/8 $46-1/2
2nd Quarter .270 .2450 54-5/8 45-3/4
3rd Quarter .300 .2725 51-7/8 43-1/2
4th Quarter .300 .2725 54-3/4 48-5/8
Total $1.140 $1.0350
* NYSE-Composite Quotations for Common Stock by calendar quarter.
Operating Return on Average Stockholders' Equity
The Corporation's operating return on average stockholders' equity was
18.5% in 1994. Over the most recent five-year period, the return has
ranged from 16.6% in 1990 to 18.5% in 1994. For the purpose of calculating
operating return on average stockholders' equity, earnings is defined as
net income, excluding the after-tax gain on business restructuring in 1990,
the catch-up adjustment for accounting changes and the after-tax gain on
the sale of the investment in Freia in 1993, and the after-tax
restructuring charge in 1994.
Operating Return on Average Invested Capital
The Corporation's operating return on average invested capital was 15.6% in
1994. Over the most recent five-year period, the return has ranged from
13.4% in 1990 to 15.6% in 1994. Average invested capital consists of the
annual average of beginning and ending balances of long-term debt, deferred
income taxes and stockholders' equity. For the purpose of calculating
operating return on average invested capital, earnings is defined as net
income, excluding the after-tax gains on business restructuring and the
sale of the investment in Freia, the catch-up adjustment for accounting
changes, the after-tax restructuring charge in 1994, and the after-tax
effect of interest on long-term debt.
<PAGE>
<PAGE> Page 18
<TABLE>
HERSHEY FOODS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
In thousands of dollars except per share amounts
<CAPTION>
For the years ended December 31, 1994 1993 1992
<S> <C> <C> <C>
Net Sales $3,606,271 $3,488,249 $3,219,805
Costs and Expenses:
Cost of sales 2,097,556 1,995,502 1,833,388
Selling, marketing and administrative 1,034,115 1,035,519 958,189
Total costs and expenses 3,131,671 3,031,021 2,791,577
Restructuring Charge (106,105) - -
Gain on Sale of Investment Interest - 80,642 -
Income before Interest, Income Taxes
and Accounting Changes 368,495 537,870 428,228
Interest expense, net 35,357 26,995 27,240
Income before Income Taxes
and Accounting Changes 333,138 510,875 400,988
Provision for income taxes 148,919 213,642 158,390
Income before Cumulative Effect
of Accounting Changes 184,219 297,233 242,598
Net cumulative effect of
accounting changes - (103,908) -
Net Income $ 184,219 $ 193,325 $ 242,598
Income Per Share:
Before accounting changes $ 2.12 $ 3.31 $ 2.69
Net cumulative effect of
accounting changes - (1.16) -
Net income $ 2.12 $ 2.15 $ 2.69
Cash Dividends Paid Per Share:
Common Stock $ 1.250 $ 1.140 $ 1.030
Class B Common Stock 1.135 1.035 .935
</TABLE>
The notes to consolidated financial statements are an integral part
of these statements.
<PAGE>
<PAGE> Page 19
HERSHEY FOODS CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS - RESULTS OF OPERATIONS
Net Sales
Net sales rose $118.0 million or 3% in 1994 and $268.4 million or
8% in 1993. The increase in 1994 was due to volume growth from new
products and businesses acquired in late 1993, and pasta selling
price increases. These increases were substantially offset by
lower sales caused by reduced demand for existing confectionery and
grocery brands which began late in the first quarter of 1993.
Sales of the Corporation's Canadian and Mexican businesses were lower
in 1994 due to volume declines resulting from adverse economic conditions
and the impact of currency exchange rates. The increase in 1993 primarily
reflected volume growth from new products and business acquisitions, and
pasta selling price increases, which more than offset the effects of sluggish
demand for existing brands in most of the Corporation's domestic and
international markets.
Costs and Expenses
Cost of sales as a percent of net sales increased from 56.9% in
1992 to 57.2% in 1993 and 58.2% in 1994. The decrease in gross
margin in 1994 was primarily the result of higher costs for certain
major raw materials, particularly semolina, higher expenses for
depreciation, and lower margins associated with the international
businesses, partially offset by lower costs resulting from
manufacturing efficiency improvements, and pasta selling price
increases. The decrease in gross margin in 1993 reflected higher
manufacturing costs related to new products, incremental
manufacturing, shipping and depreciation costs associated with the
completion and start-up of new manufacturing and distribution
facilities, and recurring expenses associated with a change in
accounting for post-retirement benefits. These higher costs and
expenses were partially offset by lower costs for certain major raw
materials and pasta price increases.
Selling, marketing and administrative costs decreased slightly in
1994 primarily due to reduced levels of promotion and advertising
expenses for existing confectionery brands, largely offset by
increased promotion and advertising expenses related to the
introduction of new products and higher selling and administrative
expenses associated with the 1993 business acquisitions. Selling,
marketing and administrative costs increased in 1993 primarily as a
result of higher promotion expenses associated with the sales
volume growth and the introduction of new products, and incremental
selling expenses related to business acquisitions.
Restructuring Charge
In the fourth quarter of 1994, the Corporation recorded a pre-tax
restructuring charge of $106.1 million following a comprehensive
review of domestic and international operations designed to enhance
performance of operating assets by lowering operating and
administrative costs, eliminating underperforming assets and
streamlining the overall decision-making process. The charge of
$106.1 million resulted in an after-tax charge of $80.2 million or
$.92 per share in 1994.
The charge included $34.3 million of severance and termination benefits
for the elimination of approximately 500 positions in the manufacturing
technical and administrative areas at both domestic and international
operations. The charge also included anticipated losses on disposals of
certain businesses of $39.1 million, product line discontinuations of
$17.5 million and the consolidation of operations and disposal of machinery
and equipment of $15.2 million. Approximately 60% of the charge was
non-cash. Operating cash flows will be used to fund any severance
or other cash items.
The restructuring program is expected to be completed in 1995 and
result in annual savings of approximately $18.0 million starting in
1996.
Gain on Sale of Investment Interest
In March 1993, the Corporation sold its 18.6% investment interest
in Freia and recorded a pre-tax gain of $80.6 million, or $40.6
million after tax.
Interest Expense, Net
Net interest expense increased $8.4 million in 1994 as higher
short-term interest expense and reduced capitalized interest and
interest income were only partially offset by lower fixed interest
expense. Short-term interest expense was above prior year as a
result of higher borrowing levels related to the share repurchase
program and the 1993 acquisitions, and increased short-term
borrowing rates. Fixed interest expense was less than prior year
due to the retirement of long-term debt in 1993.
Net interest expense decreased $.2 million in 1993 as lower long-
term interest expense, reflecting lower debt balances, and higher
interest income more than offset a decrease in capitalized
interest. Capitalized interest was below the prior year reflecting
the completion of major long-term construction projects in late
1992 and early 1993 and a corresponding reduction in expenditures
qualifying for interest capitalization in 1993.
Provision for Income Taxes
The Corporation's effective income tax rate was 44.7%, 41.8%, and
39.5% in 1994, 1993 and 1992, respectively. The increase in 1994
was principally due to the relatively low international income tax benefit
associated with the manufacturing restructuring charge. The
effective income tax rate was higher in 1993 than in 1992 largely
as a result of the relatively high income taxes associated with the
gain on the sale of the Freia investment and an increase in the
Federal statutory income tax rate as provided for in the Revenue
Reconciliation Act of 1993, which reduced net income by $5.5
million.
Net Cumulative Effect of Accounting Changes
Effective January 1, 1993, the Corporation adopted FAS No. 106 and
FAS No. 109 by means of catch-up adjustments which decreased net
income by approximately $103.9 million or $1.16 per share.
Net Income
Net income decreased by 5% in 1994. Excluding the after-tax effect of the
1994 restructuring charge, and the 1993 after-tax gain on the sale
of the Freia investment and catch-up adjustments for accounting
changes, income increased $7.8 million or 3% in 1994. Net income
increased $14.1 million or 6% in 1993, excluding the catch-up
adjustments for accounting changes and the Freia gain. Income as a
percent of net sales, after excluding the after-tax 1994
restructuring charge and the 1993 net cumulative effect of
accounting changes and the after-tax Freia gain, was 7.3% in 1994,
7.4% in 1993 and 7.5% in 1992.
<PAGE>
<PAGE> Page 20
<TABLE>
HERSHEY FOODS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
In thousands of dollars
<CAPTION>
For the years ended December 31, 1994 1993 1992
<S> <C> <C> <C>
Cash Flows Provided from (Used by)
Operating Activities
Net income $ 184,219 $ 193,325 $ 242,598
Adjustments to reconcile net income
to net cash provided from operations:
Net cumulative effect of accounting changes - 103,908 -
Depreciation and amortization 129,041 113,064 97,087
Deferred income taxes (2,328) 11,047 21,404
Restructuring charge 106,105 - -
Gain on sale of investment interest - (80,642) -
Changes in assets and liabilities,
net of effects from business acquisitions:
Accounts receivable -- trade (36,696) (100,957) (13,841)
Inventories 7,740 32,347 (20,262)
Accounts payable (10,230) (12,809) (10,715)
Other assets and liabilities (60,577) 110,259 (20,707)
Other, net 20,032 9,399 649
Net Cash Provided from Operating Activities 337,306 378,941 296,213
Cash Flows Provided from (Used by)
Investing Activities
Capital additions (138,711) (211,621) (249,795)
Business acquisitions - (164,787) -
Sale (purchase) of investment interest - 259,718 (179,076)
Other, net (6,293) (1,947) 6,581
Net Cash (Used by) Investing Activities (145,004) (118,637) (422,290)
Cash Flows Provided from (Used by)
Financing Activities
Net (decrease) increase in short-term debt (20,503) 67,485 201,425
Long-term borrowings 102 1,130 1,259
Repayment of long-term debt (14,413) (104,792) (32,173)
Cash dividends paid (106,961) (100,499) (91,444)
Repurchase of Common Stock (39,748) (131,783) -
Net Cash (Used by) Provided from
Financing Activities (181,523) (268,459) 79,067
Increase (Decrease) in Cash and
Cash Equivalents 10,779 (8,155) (47,010)
Cash and Cash Equivalents as of January 1 15,959 24,114 71,124
Cash and Cash Equivalents as of December 31 $ 26,738 $ 15,959 $ 24,114
Interest Paid $ 36,803 $ 32,073 $ 29,515
Income Taxes Paid 177,876 171,586 151,490
</TABLE>
The notes to consolidated financial statements are an integral part
of these statements.
<PAGE>
<PAGE> Page 21
HERSHEY FOODS CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS - CASH FLOWS
Summary
Over the past three years, cash provided from operating activities and the
net cash from the purchase and subsequent sale of the Corporation's
investment interest in Freia exceeded cash requirements for capital
additions and dividend payments by $194.1 million. Total debt, including
debt assumed, increased during the period by $114.5 million, reflecting the
financing needs for several business acquisitions and a share repurchase
program. Cash and cash equivalents decreased by $44.4 million during the
period.
The Corporation's income and, consequently, cash provided from operations
during the year is affected by seasonal sales patterns, the timing of new
product introductions, business acquisitions and price increases.
Chocolate, confectionery and grocery seasonal and holiday-related sales
have typically been highest during the third and fourth quarters of the
year, representing the principal seasonal effect. Generally, the
Corporation's seasonal working capital needs peak during the summer months
and have been met by issuing commercial paper.
Operating Activities
During the past three years, depreciation and amortization have increased
significantly as a result of continuing investment in capital additions and
business acquisitions. Cash requirements for accounts receivable and
inventories have tended to fluctuate during the three-year period based on
sales during December and inventory management practices. The change in
cash required for or provided from other assets and liabilities between the
years was primarily related to commodities transactions and the timing of
payments for accrued liabilities, including income taxes and in 1994,
restructuring expenses.
Investing Activities
Investing activities included capital additions, several business
acquisitions, and the purchase and subsequent sale of an 18.6% investment
interest in Freia in 1992 and 1993, respectively. The income tax benefit
associated with the 1994 restructuring charge and income taxes paid in 1993
on the Freia gain were included in operating activities. Capital additions
during the past three years included the purchase of manufacturing
equipment, construction of new manufacturing and office facilities, and
expansion and modernization of existing facilities. Businesses acquired
during the past three years included OZF Jamin, Sperlari and Ideal/Mrs.
Weiss in 1993. Cash used for business acquisitions represented the
purchase price paid and consisted of the current assets, property, plant
and equipment, and intangibles acquired, net of liabilities assumed.
Financing Activities
Financing activities included debt borrowings and repayments, payment of
dividends and the repurchase of Common Stock. During the past three years,
short-term borrowings in the form of commercial paper or bank borrowings
were used to fund seasonal working capital requirements, business
acquisitions, the purchase of the Freia investment interest and a share
repurchase program. A portion of the proceeds received from the sale of
the Freia investment was used to repay long-term debt in 1993.
During 1993, the Corporation's Board of Directors approved a share
repurchase program to acquire from time to time through open market or
privately negotiated transactions up to $200 million of Common Stock. As
of December 31, 1994, a total of 3,451,139 shares had been repurchased at
an average price of $50 per share.
<PAGE>
<PAGE> Page 22
<TABLE>
HERSHEY FOODS CORPORATION
CONSOLIDATED BALANCE SHEETS
In thousands of dollars
<CAPTION>
December 31, 1994 1993
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 26,738 $ 15,959
Accounts receivable--trade 331,670 294,974
Inventories 445,702 453,442
Deferred income taxes 105,948 85,548
Prepaid expenses and other 38,608 39,073
Total current assets 948,666 888,996
Property, Plant and Equipment, Net 1,468,397 1,460,904
Intangibles Resulting from Business Acquisitions 453,582 473,408
Other Assets 20,336 31,783
Total assets $2,890,981 $2,855,091
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 115,428 $ 125,658
Accrued liabilities 265,283 301,989
Accrued restructuring reserves 82,055 -
Accrued income taxes 8,718 35,603
Short-term debt 316,783 337,286
Current portion of long-term debt 7,954 13,309
Total current liabilities 796,221 813,845
Long-term Debt 157,227 165,757
Other Long-term Liabilities 303,056 290,401
Deferred Income Taxes 193,377 172,744
Total liabilities 1,449,881 1,442,747
Stockholders' Equity:
Preferred Stock, shares issued:
none in 1994 and 1993 - -
Common Stock, shares issued: 74,679,357 in 1994
and 74,669,057 in 1993 74,679 74,669
Class B Common Stock, shares issued:
15,242,979 in 1994 and 15,253,279 in 1993 15,243 15,253
Additional paid-in capital 49,880 51,196
Cumulative foreign currency translation
adjustments (24,537) (13,905)
Unearned ESOP compensation (38,321) (41,515)
Retained earnings 1,522,867 1,445,609
Treasury--Common Stock shares, at cost:
3,187,139 in 1994 and 2,309,100 in 1993 (158,711) (118,963)
Total stockholders' equity 1,441,100 1,412,344
Total liabilities and stockholders' equity $2,890,981 $2,855,091
</TABLE>
The notes to consolidated financial statements are an integral part
of these balance sheets.
<PAGE>
<PAGE> Page 23
HERSHEY FOODS CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS - FINANCIAL CONDITION
Assets
Total assets increased $35.9 million or 1% as of December 31, 1994,
primarily as a result of capital additions and increases in current
assets, offset somewhat by a decrease in intangibles from business
acquisitions.
Current assets increased by $59.7 million reflecting higher
accounts receivable and current deferred income taxes. The
increase in accounts receivable was primarily related to higher
sales occurring toward the end of the year. Current deferred
income taxes increased as a result of the income tax benefit
associated with the restructuring charge recorded in the fourth
quarter.
The $7.5 million net increase in property, plant and equipment
included capital additions of $138.7 million in 1994 and
depreciation expense of $114.8 million.
The decrease in intangibles resulting from business acquisitions
principally reflected amortization of intangibles, adjustments
associated with the restructuring plan and final accounting for
1993 business acquisitions.
Liabilities
Total liabilities increased by $7.1 million as of December 31,
1994, primarily due to increases in deferred income taxes and long-
term liabilities, substantially offset by decreases in current
liabilities and long-term debt.
Current liabilities decreased by $17.6 million principally as a
result of decreases in accrued liabilities related to benefits,
marketing promotions and the timing of income tax payments. A
decrease in short-term debt reflected lower commercial paper
borrowing levels as a result of cash provided from operating
activities and reduced spending for stock repurchases and capital
additions. These decreases were largely offset by accrued
restructuring reserves of $82.1 million associated with the
Corporation's restructuring plan. Total accrued restructuring
reserves of $106.1 million were recorded in the fourth quarter. As
of December 31, 1994, $24.0 million of these reserves had been
utilized.
The increase in other long-term liabilities primarily reflected
increases in liabilities associated with employee post-retirement
and pension benefits.
Deferred income taxes increased principally due to higher temporary
differences resulting from the use of accelerated depreciation
methods for tax purposes.
Stockholders' Equity
Total stockholders' equity increased by 2% in 1994 and has
increased at a compound annual rate of 8% over the past 10 years.
<PAGE>
<PAGE> Page 24-25
<TABLE>
HERSHEY FOODS CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
In thousands of dollars
<CAPTION> Cumulative
Foreign
Class B Additional Currency Unearned Treasury Total
Preferred Common Common Paid-in Translation ESOP Retained Common Stockholders'
Stock Stock Stock Capital Adjustments Compen- Earnings Stock Equity
sation
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance as of January 1, 1992 $ - $74,921 $15,265 $52,509 $ 26,424 $(47,902) $1,214,034 $ - $1,335,251
Net income 242,598 242,598
Dividends:
Common Stock, $1.030 per share (77,174) (77,174)
Class B Common Stock,
$.935 per share (14,270) (14,270)
Foreign currency
translation adjustments (23,940) (23,940)
Conversion of Class B Common Stock
into Common Stock 8 (8) -
Incentive plan transactions (741) (741)
Employee stock ownership trust
transactions 361 3,194 3,555
Balance as of December 31, 1992 - 74,929 15,257 52,129 2,484 (44,708) 1,365,188 - 1,465,279
Net income 193,325 193,325
Dividends:
Common Stock, $1.140 per share (84,711) (84,711)
Class B Common Stock,
$1.035 per share (15,788) (15,788)
Foreign currency translation
adjustments (16,389) (16,389)
Conversion of Class B Common Stock
into Common Stock 4 (4) -
Incentive plan transactions (1,269) (1,269)
Employee stock ownership trust
transactions 487 3,193 3,680
Repurchase of Common Stock (264) (151) (12,405) (118,963) (131,783)
Balance as of December 31, 1993 - 74,669 15,253 51,196 (13,905) (41,515) 1,445,609 (118,963) 1,412,344
Net income 184,219 184,219
Dividends:
Common Stock, $1.250 per share (89,660) (89,660)
Class B Common Stock,
$1.135 per share (17,301) (17,301)
Foreign currency translation
adjustments (10,632) (10,632)
Conversion of Class B Common Stock
into Common Stock 10 (10) -
Incentive plan transactions (1,812) (1,812)
Employee stock ownership trust
transactions 496 3,194 3,690
Repurchase of Common Stock (39,748) (39,748)
Balance as of December 31, 1994 $ - $74,679 $15,243 $49,880 $(24,537) $(38,321) $1,522,867 $(158,711) $1,441,100
</TABLE>
The notes to consolidated financial statements are an integral part
of these statements.
<PAGE>
<PAGE> Page 26
HERSHEY FOODS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Significant accounting policies employed by the Corporation are
discussed below and in other notes to the consolidated financial
statements.
Principles of Consolidation
The consolidated financial statements include the accounts of the
Corporation and its subsidiaries after elimination of intercompany
accounts and transactions. Investments in affiliated companies are
accounted for using the equity method.
Cash Equivalents
All highly liquid debt instruments purchased with a maturity of
three months or less are classified as cash equivalents.
Commodities Futures and Options Contracts
In connection with the purchasing of cocoa and sugar for
anticipated manufacturing requirements, the Corporation enters into
commodities futures and options contracts as deemed appropriate to
reduce the effect of price fluctuations. In accordance with
Statement of Financial Accounting Standards No. 80 "Accounting for
Futures Contracts", these futures and options contracts are
accounted for as hedges and, accordingly, gains and losses are
deferred and recognized in cost of sales as part of the product
cost.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation of
buildings, machinery and equipment is computed using the
straight-line method over the estimated useful lives.
Intangibles Resulting from Business Acquisitions
Intangible assets resulting from business acquisitions principally
consist of the excess of the acquisition cost over the fair value
of the net assets of businesses acquired (goodwill). Goodwill is
amortized on a straight-line basis over 40 years. Other intangible
assets are amortized on a straight-line basis over the estimated
useful lives. The Corporation periodically evaluates whether
events or circumstances have occurred indicating that the carrying
amount of goodwill may not be recoverable. When factors indicate
that goodwill should be evaluated for possible impairment, the
Corporation uses an estimate of the acquired business' undiscounted
future cash flows compared to the related carrying amount of net
assets, including goodwill, to determine if an impairment loss
should be recognized.
Accumulated amortization of intangible assets resulting from
business acquisitions was $86.7 million and $73.4 million as of
December 31, 1994 and 1993, respectively.
Foreign Currency Translation
Results of operations for international entities are translated
using the average exchange rates during the period. For
international entities, assets and liabilities are translated to
U.S. dollars using the exchange rates in effect at the balance
sheet date. Resulting translation adjustments are recorded in a
separate component of stockholders' equity, "Cumulative Foreign
Currency Translation Adjustments."
Foreign Exchange Contracts
The Corporation enters into foreign exchange forward and options
contracts to hedge transactions primarily related to firm
commitments to purchase equipment, certain raw materials and
finished goods denominated in international currencies, and to
hedge payment of intercompany transactions with its non-domestic
subsidiaries. These contracts reduce currency risk from exchange
rate movements. Gains and losses are deferred and accounted for as
part of the underlying transactions. In entering into these
contracts the Corporation has assumed the risk which might arise
from the possible inability of counterparties to meet the terms of
their contracts. The Corporation does not expect any losses as a
result of counterparty defaults.
License Agreements
The Corporation has entered into license agreements under which it
has access to certain trademarks and proprietary technology, and
manufactures and/or markets and distributes certain products. The
rights under these agreements are extendable on a long-term basis
at the Corporation's option subject to certain conditions,
including minimum sales levels. License fees and royalties,
payable under the terms of the agreements, are expensed as
incurred.
Research and Development
The Corporation expenses research and development as incurred.
Research and development expense was $26.3 million, $26.2 million
and $24.2 million in 1994, 1993 and 1992, respectively.
Advertising
The Corporation expenses advertising costs as incurred. Advertising
expense was $120.6 million, $130.0 million and $137.6 million in
1994, 1993 and 1992, respectively. Prepaid advertising as of
December 31, 1994 and 1993 was $8.5 million and $1.6 million, respectively.
<PAGE>
<PAGE> Page 27
2. ACQUISITIONS AND DIVESTITURE
In October 1993, the Corporation completed the purchase of the
outstanding shares of Overspecht B.V. (OZF Jamin) for approximately
$20.2 million, plus the assumption of approximately $13.4 million
in debt. OZF Jamin manufactures chocolate and non-chocolate
confectionery products, cookies, biscuits and ice cream for
distribution primarily to customers in the Netherlands and Belgium.
In September 1993, the Corporation completed the acquisition of the
Italian confectionery business of Heinz Italia S.p.A. (Sperlari)
for approximately $130.0 million. Sperlari is a leader in the
Italian non-chocolate confectionery market and manufactures and
distributes a wide range of confectionery products, including
nougat and sugar candies. Products are marketed primarily under
the SPERLARI, DONDI and SCARAMELLINI brands.
In March 1993, the Corporation acquired certain assets of the
Cleveland-area Ideal Macaroni and Weiss Noodle companies for
approximately $14.6 million.
In accordance with the purchase method of accounting, the purchase
prices of the acquisitions summarized above were allocated to the
underlying assets and liabilities at the date of acquisition based
on their estimated respective fair values which may be revised at a
later date. Total liabilities assumed, including debt, were $54.0
million in 1993. Results subsequent to the dates of acquisition
are included in the consolidated financial statements. Had the
results of these acquisitions been included in consolidated results
for the entire length of each period presented, the effect would
not have been material.
In April 1992, the Corporation completed the sale of Hershey do
Brasil Participacoes Ltda., a holding company which owned a 41.7%
equity interest in Petybon S.A., to the Bunge & Born Group for
approximately $7.0 million. Petybon S.A., located in Brazil, is a
producer of pasta, biscuits and margarine products. The sale
resulted in a modest pre-tax gain and a reduction in the effective
income tax rate of .8% for 1992.
3. RESTRUCTURING CHARGE
In the fourth quarter of 1994, the Corporation recorded a pre-tax
restructuring charge of $106.1 million following a comprehensive
review of domestic and international operations designed to enhance
performance of operating assets by lowering operating and
administrative costs, eliminating underperforming assets and
streamlining the overall decision-making process. The charge of
$106.1 million resulted in an after-tax charge of $80.2 million or
$.92 per share in 1994.
The charge included $34.3 million of severance and termination
benefits for the elimination of approximately 500 positions in the
manufacturing, technical and administrative areas at both domestic
and international operations. The charge also included anticipated
losses on disposals of certain businesses of $39.1 million, product line
discontinuations of $17.5 million and the consolidation of operations and
disposal of machinery and equipment of $15.2 million. Approximately 60%
of the charge was non-cash. Operating cash flows will be used to fund
any severance or other cash items.
As of December 31, 1994, $24.0 million of the accrued restructuring
reserves had been utilized, including $15.0 million related to
product line discontinuations, $3.5 million for consolidation of
operations and disposal of machinery and equipment, $3.8 million
for severance liabilities and $1.7 million related to the effect of
currency translation.
4. GAIN ON SALE OF INVESTMENT INTEREST
In May 1992, the Corporation completed the acquisition of an 18.6%
investment interest in Freia Marabou a.s (Freia) for $179.1
million. The investment was accounted for under the cost method in
1992. In October 1992, the Corporation tendered its investment
interest in response to a Kraft General Foods Holdings Norway, Inc.
(KGF) bid to acquire Freia subject to certain conditions, including
approval by the Norwegian government.
KGF received approval of its ownership and, in March 1993, the
Corporation recorded a pre-tax gain of $80.6 million on the sale of
its Freia investment. This gain had the effect of increasing net
income by $40.6 million. Gross proceeds from the sale in the
amount of $259.7 million were received in April 1993.
5. RENTAL AND LEASE COMMITMENTS
Rent expense was $25.7 million, $24.5 million and $24.0 million
for 1994, 1993 and 1992, respectively. Rent expense pertains to
all operating leases which were principally related to certain
administrative buildings, distribution facilities and
transportation equipment. Future minimum rental payments under
non-cancellable operating leases with a remaining term in excess of
one year as of December 31, 1994, were: 1995, $12.9 million; 1996,
$120 million; 1997, $11.3 million; 1998, $10.8 million; 1999, $12.6
million; 2000 and beyond, $93.4 million.
<PAGE>
<PAGE> Page 28
6. FINANCIAL INSTRUMENTS
The carrying amounts of financial instruments including cash and
cash equivalents, accounts receivable, accounts payable and short-
term debt approximated fair value as of December 31, 1994 and 1993,
because of the relatively short maturity of these instruments. The
carrying value of long-term debt, including the current portion,
approximated fair value as of December 31, 1994 and 1993, based
upon quoted market prices for the same or similar debt issues.
As of December 31, 1994, the Corporation had foreign exchange
forward contracts maturing in 1995 and 1996 to purchase $35.7
million in foreign currency, primarily British sterling and
Canadian dollars, and to sell $7.5 million in foreign currency,
primarily Japanese yen, at contracted forward rates.
To hedge foreign currency exposure related to anticipated
transactions associated with the purchase of certain raw materials
and finished goods generally covering 3 to 24 months, the
Corporation also purchases foreign exchange options which permit
but do not require the Corporation to exchange foreign currencies
at a future date with another party at a contracted exchange rate.
To finance premiums paid on such options, from time to time the
Corporation may also write offsetting options at exercise prices
which limit but do not eliminate the effect of purchased options
and forward contracts as a hedge. As of December 31, 1994, the
Corporation had purchased foreign exchange options of $11.6 million
and written foreign exchange options of $10.9 million, principally
related to British sterling.
The fair value of foreign exchange forward contracts is estimated
by obtaining quotes for future contracts with similar terms,
adjusted where necessary for maturity differences, and the fair
value of foreign exchange options is estimated using active
exchange quotations. As of December 31, 1994, the fair value of
foreign exchange forward and options contracts approximated
carrying value. The Corporation does not hold or issue financial
instruments for trading purposes.
As of December 31, 1993, the Corporation had foreign exchange
forward contracts maturing in 1994 and 1995 to purchase $39.1
million in foreign currency, primarily British sterling and
Canadian dollars, and to sell $3.6 million in foreign currency at
contracted forward rates.
7. INTEREST EXPENSE
Interest expense, net consisted of the following:
For the years ended December 31, 1994 1993 1992
In thousands of dollars
Long-term debt and lease obligations $19,103 $23,016 $30,435
Short-term debt 21,155 11,854 11,328
Capitalized interest (3,009) (4,646) (12,055)
Interest expense, gross 37,249 30,224 29,708
Interest income (1,892) (3,229) (2,468)
Interest expense, net $35,357 $26,995 $27,240
8. SHORT-TERM DEBT
Generally, the Corporation's short-term borrowings are in the form
of commercial paper or bank loans with an original maturity of
three months or less. The Corporation maintained lines of credit
arrangements with domestic and international commercial banks,
under which it could borrow in various currencies up to $516
million as of December 31, 1994, and up to $560 million as of
December 31, 1993, at the lending banks' prime commercial interest
rates or lower. These lines of credit, which may be used to
support commercial paper borrowings, may be terminated at the
option of the Corporation. The Corporation had combined domestic
commercial paper borrowings and short-term international bank loans
against these lines of credit of $316.8 million and $337.3 million
as of December 31, 1994 and 1993, respectively. The weighted
average interest rates on short-term borrowings outstanding as of
December 31, 1994 and 1993, were 6.0% and 3.8%, respectively.
Lines of credit were supported by commitment fee arrangements. The
fees were generally 1/8% per annum of the commitment. There were
no significant compensating balance agreements which legally
restricted these funds.
As a result of maintaining a consolidated cash management system,
the Corporation maintains overdraft positions at certain banks.
Such overdrafts, which were included in accounts payable, were
$23.0 million and $17.2 million as of December 31, 1994 and 1993,
respectively.
<PAGE>
<PAGE> Page 29
9. LONG-TERM DEBT
Long-term debt consisted of the following:
December 31, 1994 1993
In thousands of dollars
Medium-term Notes, 8.45% to 9.92%, due 1994-1998 $ 45,400 $ 55,400
8.8% Debentures due 2021 100,000 100,000
Other obligations, net of unamortized debt discount 19,781 23,666
Total long-term debt 165,181 179,066
Less -- current portion 7,954 13,309
Long-term portion $157,227 $165,757
Aggregate annual maturities during the next five years are: 1995,
$8.0 million; 1996, $2.4 million; 1997, $16.0 million; 1998, $25.6
million; and 1999, $.6 million. The Corporation's debt is
principally unsecured and of equal priority. None of the debt is
convertible into stock of the Corporation. The Corporation is in
compliance with all covenants included in the related debt
agreements.
10. INCOME TAXES
Effective January 1, 1993, the Corporation adopted Statement of
Financial Accounting Standards No. 109 "Accounting for Income
Taxes" (FAS No. 109), which requires the use of the liability
method of accounting for deferred income taxes. This change in
accounting as of January 1, 1993, which was recorded as a catch-up
adjustment, increased 1993 net income by $8.2 million or $.09 per
share.
Income before income taxes and accounting changes was as follows:
For the years ended December 31, 1994 1993 1992
In thousands of dollars
Domestic $411,089 $417,226 $388,685
International (77,951) 13,007 12,303
Gain on sale of investment interest - 80,642 -
Income before income taxes and
accounting changes $333,138 $510,875 $400,988
The provision for income taxes excluding the FAS No. 109 catch-up adjustment
in 1993, was as follows:
For the years ended December 31, 1994 1993 1992
In thousands of dollars
Current:
Federal $126,234 $141,541 $104,223
State 24,712 37,358 30,968
International 301 23,696 1,795
Current provision for income taxes 151,247 202,595 136,986
Deferred:
Federal 6,221 2,949 11,770
State 2,652 1,764 4,579
International (11,201) 6,334 5,055
Deferred provision for income taxes (2,328) 11,047 21,404
Total provision for income taxes $148,919 $213,642 $158,390
The 1994 International deferred income tax benefit was associated primarily
with the restructuring charge recorded in the fourth quarter.
<PAGE>
<PAGE> Page 30
The tax effects of the significant temporary differences which
comprised the deferred tax assets and liabilities were as follows:
<TABLE>
<CAPTION>
December 31, 1994 December 31, 1993
Deferred Deferred Deferred Deferred
Income Tax Income Tax Income Tax Income Tax
Assets Liabilities Assets Liabilities
In thousands of dollars
<S> <C> <C> <C> <C>
Current:
Post-retirement benefit obligations $ 3,496 $ - $ 3,478 $ -
Accrued restructuring reserves 19,598 - - -
Accrued expenses and other reserves 68,030 - 70,678 -
Other 22,948 8,124 16,555 5,163
Total current deferred income taxes 114,072 8,124 90,711 5,163
Non-current:
Depreciation - 231,035 - 214,566
Post-retirement benefit obligations 82,034 - 78,190 -
Accrued expenses and other reserves 22,845 - 24,800 -
Other 15,795 83,016 10,744 71,912
Total non-current deferred income taxes 120,674 314,051 113,734 286,478
Total deferred income taxes $234,746 $322,175 $204,445 $291,641
</TABLE>
The following table reconciles the Federal statutory income tax
rate with the Corporation's effective income tax rate:
<TABLE>
For the years ended December 31, 1994 1993 1992
<CAPTION>
<S> <C> <C> <C>
Federal statutory tax rate 35.0% 35.0% 34.0%
Increase (reduction) resulting from:
State income taxes, net of Federal
income tax benefits 6.0 6.2 6.0
Restructuring charge for which no
tax benefit was provided 4.5 - -
Non-deductible acquisition costs 0.8 0.6 0.9
Other, net (1.6) - (1.4)
Effective income tax rate 44.7% 41.8% 39.5%
</TABLE>
<PAGE>
<PAGE> Page 31
11. RETIREMENT PLANS
The Corporation and its subsidiaries sponsor several defined
benefit retirement plans covering substantially all employees.
Plans covering most domestic salaried and hourly employees provide
retirement benefits based on individual account balances which are
increased annually by pay-related and interest credits. Plans
covering certain non-domestic employees provide retirement benefits
based on career average pay, final pay, or final average pay as
defined within the provisions of the individual plans. The
Corporation also participates in several multi-employer retirement
plans which provide defined benefits to employees covered under
certain collective bargaining agreements.
The Corporation's policy is to fund domestic pension liabilities in
accordance with the minimum and maximum limits imposed by the
Employee Retirement Income Security Act of 1974 and Federal income
tax laws, respectively. Non-domestic pension liabilities are
funded in accordance with applicable local laws and regulations.
Plan assets are invested in a broadly diversified portfolio
consisting primarily of domestic and international common stocks
and fixed income securities.
Pension expense included the following components:
For the years ended December 31, 1994 1993 1992
In thousands of dollars
Service cost $ 30,077 $ 27,835 $ 22,858
Interest cost on projected
benefit obligations 28,351 26,423 24,098
Investment loss (return) on plan assets 8,288 (46,232) (12,331)
Net amortization and deferral (40,550) 18,519 (15,245)
Corporate sponsored plans 26,166 26,545 19,380
Multi-employer plans 374 612 580
Other 622 678 630
Total pension expense $ 27,162 $ 27,835 $ 20,590
The funded status and amounts recognized in the consolidated balance sheets
for the retirement plans were as follows:
<TABLE>
<CAPTION>
December 31, 1994 December 31, 1993
Assets Accumulated Assets Accumulated
Exceeded Benefits Exceeded Benefits
Accumulated Exceeded Accumulated Exceeded
Benefits Assets Benefits Assets
In thousands of dollars
<S> <C> <C> <C> <C>
Actuarial present value of:
Vested benefit obligations $310,061 $33,272 $144,608 $204,861
Accumulated benefit obligations $330,161 $39,966 $155,838 $221,867
Actuarial present value of projected
benefit obligations $367,656 $43,250 $185,926 $231,972
Plan assets at fair value 341,373 1,748 166,727 181,813
Plan assets less than projected
benefit obligations 26,283 41,502 19,199 50,159
Net gain (loss) unrecognized at date
of transition 1,711 (2,198) (5,440) 4,381
Prior service cost and amendments not yet
recognized in earnings (19,620) (1,744) 94 (11,556)
Unrecognized net loss from past experience
different than that assumed (9,711) (455) (7,171) (13,948)
Minimum liability adjustment - 4,031 - 14,866
(Prepaid pension expense) pension liability $ (1,337) $41,136 $ 6,682 $ 43,902
</TABLE>
The projected benefit obligations for the plans were determined principally
using discount rates of 8.5% and 7.0% as of December 31, 1994 and 1993,
respectively. For both 1994 and 1993 the assumed long-term rate of
return on plan assets was 9.5%. The assumed long-term compensation increase
rates for 1994 and 1993 were primarily 4.8% and 6.0%, respectively.
<PAGE>
<PAGE> Page 32
12. POST-RETIREMENT BENEFITS
The Corporation and its subsidiaries provide certain health care
and life insurance benefits for retired employees subject to pre-
defined limits. Substantially all of the Corporation's domestic
employees become eligible for these benefits at retirement with a
pre-defined benefit being available at an early retirement date.
The post-retirement medical benefit is contributory for pre-
Medicare retirees and for most post-Medicare retirees retiring on
or after February 1, 1993. Retiree contributions are based upon a
combination of years of service and age at retirement. The post-
retirement life insurance benefit is non-contributory.
Effective January 1, 1993, the Corporation adopted Statement of
Financial Accounting Standards No. 106 "Employers' Accounting for
Post-retirement Benefits Other Than Pensions" (FAS No. 106) which
requires that the cost of post-retirement benefits be accrued
during employees' working careers. The Corporation elected to
adopt FAS No. 106 by means of a catch-up adjustment. This change
in accounting as of January 1, 1993, had the effect of decreasing
net income by $112.2 million, or $1.25 per share, after a deferred
tax benefit of $76.3 million.
Prior to 1993, the Corporation accounted for such benefits as an
expense as paid. Expense recognized under FAS No. 106 during 1993
incrementally reduced net income by $5.9 million.
Net post-retirement benefit costs consisted of the following
components:
For the years ended December 31, 1994 1993
In thousands of dollars
Service cost $ 3,642 $ 3,997
Interest cost on projected benefit obligations 13,334 12,897
Amortization (1,028) (280)
Total $15,948 $16,614
Obligations are unfunded and the actuarial present values of accumulated
post-retirement benefit obligations recognized in the consolidated
balance sheets were as follows:
December 31, 1994 1993
In thousands of dollars
Retirees $ 92,051 $ 87,765
Fully eligible active plan participants 26,030 31,852
Other active plan participants 49,338 65,069
Total 167,419 184,686
Plan amendments 19,224 5,746
Unrecognized net gain from past experience
different than that assumed 20,285 7,976
Accrued post-retirement benefits $206,928 $198,408
The accumulated post-retirement benefit obligations were determined
principally using discount rates of 8.5% and 7.5% as of December
31, 1994 and 1993, respectively. The assumed average health care
cost trend rate used in measuring the accumulated post-retirement
benefit obligations as of December 31, 1994 and 1993, was
principally 12%, gradually declining to approximately 7% by 2003,
and remaining at that level thereafter. A one percentage point
increase in the average health care cost trend rate for each year
would increase the accumulated post-retirement benefit obligations
as of December 31, 1994 and 1993, by $23.5 million and $18.3
million, respectively, and would increase the sum of the net
service and interest cost components of net post-retirement benefit
costs for 1994 and 1993 by $2.8 million and $2.2 million,
respectively.
As part of its long-range financing plans, the Corporation, in
1989, implemented a corporate-owned life insurance program covering
most of its domestic employees. After paying employee death
benefits, proceeds from this program will be available for general
corporate purposes and may be used to offset future employee
benefits costs, including retiree medical benefits. The
Corporation's investment in corporate-owned life insurance policies
was recorded net of policy loans in other assets, and interest
accrued on the policy loans was included in accrued liabilities as
of December 31, 1994 and 1993. Net life insurance expense,
including interest expense, was included in selling, marketing and
administrative expenses.
<PAGE>
<PAGE> Page 33
13. EMPLOYEE STOCK OWNERSHIP TRUST
The Corporation's employee stock ownership trust (ESOP) serves as
the primary vehicle for contributions to its existing employee
savings and stock investment plan for participating domestic
salaried and hourly employees. The ESOP was funded by a 15-year
7.75% loan of $47.9 million from the Corporation. During 1994 and
1993, the ESOP received a combination of dividends on unallocated
shares and contributions from the Corporation equal to the amount
required to meet its principal and interest payments under the
loan. Simultaneously, the ESOP allocated to participants 79,588
shares of Common Stock each year. As of December 31, 1994, the
ESOP held 221,334 of allocated shares and 955,052 of unallocated
shares. All ESOP shares are considered outstanding for income per
share computations.
The Corporation recognized net compensation expense equal to the
shares allocated multiplied by the original cost of $40 1/8 per
share less dividends received by the ESOP on unallocated shares.
Compensation expense related to the ESOP for 1994, 1993 and 1992 was $1.7
million, $2.0 million and $2.3 million, respectively. Dividends paid on
unallocated ESOP shares were $1.2 million in 1994 and 1993, and $.9
million in 1992. The unearned ESOP compensation balance in stockholders'
equity represented deferred compensation expense to be
recognized by the Corporation in future years as additional shares
are allocated to participants.
14. CAPITAL STOCK AND NET INCOME PER SHARE
As of December 31, 1994, the Corporation had 530,000,000 authorized
shares of capital stock. Of this total, 450,000,000 shares were
designated as Common Stock, 75,000,000 shares as Class B Common
Stock (Class B Stock), and 5,000,000 shares as Preferred Stock,
each class having a par value of one dollar per share. As of
December 31, 1994, a combined total of 89,922,336 shares of both
classes of common stock had been issued of which 86,735,197 shares
were outstanding. No shares of the Preferred Stock were issued or
outstanding during the three-year period ended December 31, 1994.
Holders of the Common Stock and the Class B Stock generally vote
together without regard to class on matters submitted to
stockholders, including the election of directors, with the Common
Stock having one vote per share and the Class B Stock having ten
votes per share. However, the Common Stock, voting separately as a
class, is entitled to elect one-sixth of the Board of Directors.
With respect to dividend rights, the Common Stock is entitled to
cash dividends 10% higher than those declared and paid on the Class
B Stock.
Class B Stock can be converted into Common Stock on a
share-for-share basis at any time. During 1994, 1993 and 1992, a
total of 10,300 shares, 4,000 shares and 7,775 shares,
respectively, of Class B Stock were converted into Common Stock.
Hershey Trust Company, as Trustee for Milton Hershey School
(Hershey Trust), as institutional fiduciary for estates and trusts
unrelated to Milton Hershey School, and as direct owner of
investment shares, held a total of 21,379,501 shares of the Common
Stock, and as Trustee for Milton Hershey School, held 15,153,003
shares of the Class B Stock as of December 31, 1994, and was
entitled to cast approximately 77% of the total votes of both
classes of the Corporation's common stock. Hershey Trust must
approve the issuance of shares of Common Stock or any other action
which would result in the Hershey Trust not continuing to have
voting control of the Corporation.
In 1993, the Corporation's Board of Directors approved a share
repurchase program to acquire from time to time through open market
or privately negotiated transactions up to $200 million of Common
Stock. A total of 3,451,139 shares of Common Stock had been
acquired for approximately $171.5 million under the share
repurchase program as of December 31, 1994, of which 264,000 shares
were retired and the remaining 3,187,139 shares were held as
treasury stock. During 1994, 878,039 shares were repurchased at an
average price of $45 per share. Of the total purchased, 2,000,000
shares were acquired from Hershey Trust in 1993 for approximately
$103.1 million.
Net income per share has been computed based on the weighted
average number of shares of the Common Stock and the Class B Stock
outstanding during the year. Average shares outstanding were
87,018,626 for 1994, 89,757,135 for 1993 and 90,186,336 for 1992.
<PAGE>
<PAGE> Page 34
15. INCENTIVE PLAN
The long-term portion of the 1987 Key Employee Incentive Plan, as
amended (Plan), provides for grants or awards to senior executives
and key employees of one or more of the following: performance
stock units, non-qualified stock options (stock options), stock
appreciation rights and restricted stock units. The Plan also
provides for the deferral of performance stock unit awards by
participants.
As of December 31, 1994, a total of 136,615 contingent performance
stock units had been granted for potential future distribution,
primarily related to three-year cycles ending December 31, 1994,
1995 and 1996. Deferred performance stock units and accumulated
dividend amounts totaled 196,081 shares as of December 31, 1994.
Stock options are granted at exercise prices of not less than 100%
of the fair market value of a share of Common Stock at the time the
option is granted and are exercisable for periods no longer than 10
years from the date of grant. Each option may be used to purchase
one share of Common Stock. No compensation expense is recognized
under the stock options portion of the Plan.
No stock appreciation rights or restricted stock units were
outstanding as of December 31, 1994.
Stock option activity was as follows:
Shares under Options
Number Option Price
of Shares per Share
Outstanding -- January 1, 1992 857,125 $23-3/4 to 36-1/4
Granted 939,000 $41-1/8 to 44-3/4
Exercised (69,650) $23-3/4 to 35-3/8
Cancelled (9,500) $44-3/4
Outstanding -- December 31, 1992 1,716,975 $25-3/8 to 44-3/4
Granted 116,600 $47 to 53
Exercised (82,850) $25-3/8 to 35-3/8
Cancelled (20,300) $44-3/4
Outstanding -- December 31, 1993 1,730,425 $25-3/8 to 53
Granted 963,800 $49
Exercised (104,975) $25-3/8 to 44-3/4
Cancelled (55,300) $44-3/4 to 49
Outstanding -- December 31, 1994 2,533,950 $25-3/8 to 53
Stock options exercisable as of December 31, 1994 and 1993 were
1,734,750 and 951,725, respectively.
<PAGE>
<PAGE> Page 35
16. SUPPLEMENTAL BALANCE SHEET INFORMATION
Accounts Receivable - Trade
In the normal course of business, the Corporation extends credit to
customers which satisfy pre-defined credit criteria. The
Corporation believes that it has little concentration of credit
risk due to the diversity of its customer base. Receivables, as
shown on the consolidated balance sheets, were net of allowances
and anticipated discounts of $14.0 million and $12.5 million as of
December 31, 1994 and 1993, respectively.
Inventories
The Corporation values the majority of its inventories under the
last-in, first-out (LIFO) method and the remaining inventories at
the lower of first-in, first-out (FIFO) cost or market. LIFO cost
of inventories valued using the LIFO method was $318.5 million and
$310.6 million as of December 31, 1994 and 1993, respectively, and
all inventories were stated at amounts that did not exceed
realizable values. Total inventories were as follows:
December 31, 1994 1993
In thousands of dollars
Raw materials $234,317 $209,570
Goods in process 28,680 37,261
Finished goods 247,272 265,616
Inventories at FIFO 510,269 512,447
Adjustment to LIFO (64,567) (59,005)
Total inventories $445,702 $453,442
Property, Plant and Equipment
Property, plant and equipment balances included construction in
progress of $76.9 million and $171.1 million as of December 31,
1994 and 1993, respectively. Major classes of property, plant and
equipment were as follows:
December 31, 1994 1993
In thousands of dollars
Land $ 50,678 $ 48,239
Buildings 467,950 430,199
Machinery and equipment 1,604,901 1,563,326
Property, plant and equipment, gross 2,123,529 2,041,764
Accumulated depreciation (655,132) (580,860)
Property, plant and equipment, net $1,468,397 $1,460,904
Accrued Liabilities
Accrued liabilities were as follows:
December 31, 1994 1993
In thousands of dollars
Payroll and other compensation $ 67,155 $ 81,909
Advertising and promotion 81,561 89,819
Other 116,567 130,261
Total accrued liabilities $265,283 $301,989
Other Long-term Liabilities
Other long-term liabilities were as follows:
December 31, 1994 1993
In thousands of dollars
Accrued post-retirement benefits $198,251 $189,959
Other 104,805 100,442
Total other long-term liabilities $303,056 $290,401
<PAGE>
<PAGE> Page 36
17. SEGMENT INFORMATION
The Corporation operates in a single consumer foods line of
business, encompassing the domestic and international manufacture,
distribution and sale of chocolate, confectionery, grocery and
pasta products.
Operations in Canada and Europe represent the majority of the
Corporation's international business. Historically, transfers of
product between geographic areas have not been significant. In
1994, sales to Wal-Mart Stores, Inc. and Subsidiaries amounted to
approximately 10% of total net sales. Net sales, income before
interest, income taxes and accounting changes and identifiable assets
by geographic segment were as follows:
<TABLE>
For the years ended December 31, 1994 1993 1992
In thousands of dollars
<CAPTION>
<S> <C> <C> <C>
Net sales:
Domestic $3,124,155 $3,080,329 $2,871,438
International 482,116 407,920 348,367
Total $3,606,271 $3,488,249 $3,219,805
Income (loss) before interest,
income taxes and accounting changes:
Domestic $ 446,585 $ 446,565 $ 419,317
International (78,090) 10,663 8,911
Gain on sale of investment interest - 80,642 -
Total $ 368,495 $ 537,870 $ 428,228
Identifiable assets as of December 31:
Domestic $2,338,184 $2,281,766 $2,353,230
International 552,797 573,325 319,679
Total $2,890,981 $2,855,091 $2,672,909
</TABLE>
18. QUARTERLY DATA (Unaudited)
<TABLE>
Summary quarterly results were as follows:
In thousands except per share amounts
<CAPTION>
Year 1994 First Second Third Fourth
<S> <C> <C> <C> <C>
Net sales $883,890 $675,983 $966,511 $1,079,887
Gross profit 357,162 272,883 404,543 474,127
Net income 53,016 25,325 81,063 24,815(a)
Net income per share .61 .29 .93 .29
Weighted average shares outstanding 87,414 87,096 86,808 86,745
Year 1993 First Second Third Fourth
Net sales $897,788 $618,430 $935,662 $1,036,369
Gross profit 387,019 254,834 390,846 460,048
Income before cumulative effect
of accounting changes 105,055 26,025 73,971 92,182
Net cumulative effect of accounting
changes (103,908) - - -
Net income 1,147(b) 26,025 73,971 92,182
Income per share(c):
Before accounting changes 1.16 .29 .82 1.04
Net cumulative effect of
accounting changes (1.15) - - -
Net income .01 .29 .82 1.04
Weighted average shares outstanding 90,186 90,186 90,124 88,489
</TABLE>
(a) Net income for the fourth quarter and year 1994 included an after-tax
restructuring charge of $80.2 million. Net income per share was
similarly impacted.
(b) Net income for the first quarter and year 1993 included the net cumulative
effect of accounting changes for post-retirement benefits and income
taxes of $(103.9) million and an after-tax gain on the sale of the
investment interest in Freia of $40.6 million. Net income per share was
similarly impacted.
(c) Quarterly income per share amounts for 1993 do not total to annual amounts
due to the changes in weighted average shares outstanding during the year.
<PAGE>
<PAGE> Page 37
RESPONSIBILITY FOR FINANCIAL STATEMENTS
Hershey Foods Corporation is responsible for the financial
statements and other financial information contained in this
report. The Corporation believes that the financial statements
have been prepared in conformity with generally accepted
accounting principles appropriate under the circumstances to
reflect in all material respects the substance of applicable
events and transactions. In preparing the financial statements,
it is necessary that management make informed estimates and
judgments. The other financial information in this annual report
is consistent with the financial statements.
The Corporation maintains a system of internal accounting
controls designed to provide reasonable assurance that financial
records are reliable for purposes of preparing financial
statements and that assets are properly accounted for and
safeguarded. The concept of reasonable assurance is based on the
recognition that the cost of the system must be related to the
benefits to be derived. The Corporation believes its system
provides an appropriate balance in this regard. The Corporation
maintains an Internal Audit Department which reviews the adequacy
and tests the application of internal accounting controls.
The financial statements have been audited by Arthur Andersen
LLP, independent public accountants, whose appointment was
ratified by stockholder vote at the stockholders' meeting held on
April 25, 1994. Their report expresses an opinion that the
Corporation's financial statements are fairly stated in
conformity with generally accepted accounting principles, and
they have indicated to us that their examination was performed in
accordance with generally accepted auditing standards which are
designed to obtain reasonable assurance about whether the
financial statements are free of material misstatement.
The Audit Committee of the Board of Directors of the Corporation,
consisting solely of non-management directors, meets regularly
with the independent public accountants, internal auditors and
management to discuss, among other things, the audit scopes and
results. Arthur Andersen LLP and the internal auditors both have
full and free access to the Audit Committee, with and without the
presence of management.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors
of Hershey Foods Corporation:
We have audited the accompanying consolidated balance sheets of
Hershey Foods Corporation (a Delaware Corporation) and
subsidiaries as of December 31, 1994 and 1993, and the related
consolidated statements of income, stockholders' equity and cash
flows for each of the three years in the period ended
December 31, 1994, appearing on pages 18, 20, 22 and 24 through
36. These financial statements are the responsibility of the
Corporation's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of Hershey Foods Corporation and subsidiaries as of December 31,
1994 and 1993, and the results of their operations and cash flows
for each of the three years in the period ended December 31, 1994
in conformity with generally accepted accounting principles.
As discussed in Notes 10 and 12 to the consolidated financial
statements, effective January 1, 1993, the Corporation changed
its methods of accounting for income taxes and post-retirement
benefits other than pensions.
/s/Arthur Andersen LLP
New York, N.Y.
January 27, 1995
<PAGE>
<PAGE> Page Inside Back Cover
<TABLE>
HERSHEY FOODS CORPORATION
ELEVEN-YEAR CONSOLIDATED FINANCIAL SUMMARY
<CAPTION>
All dollar and share amounts in
thousands except market price
and per share statistics
10-Year
Compound
Growth Rate 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C> <C>
Summary of Operations(a)
Net Sales 9.7% $ 3,606,271 3,488,249 3,219,805 2,899,165 2,715,609
Cost of Sales 8.4% $ 2,097,556 1,995,502 1,833,388 1,694,404 1,588,360
Selling, Marketing and Administrative 12.8% $ 1,034,115 1,035,519 958,189 814,459 776,668
Restructuring (Charge) Gain, Net $ (106,105) - - - 35,540
Gain on Sale of Investment Interest $ - 80,642 - - -
Interest Expense, Net 15.6% $ 35,357 26,995 27,240 26,845 24,603
Income Taxes 6.0% $ 148,919 213,642 158,390 143,929 145,636
Income from Continuing Operations
Before Accounting Changes 7.7% $ 184,219 297,233 242,598 219,528 215,882
Net Cumulative Effect of
Accounting Changes $ - (103,908) - - -
Discontinued Operations $ - - - - -
Net Income 5.4% $ 184,219 193,325 242,598 219,528 215,882
Income Per Share:
From Continuing Operations Before
Accounting Changes(b) 8.6% $ 2.12(g) 3.31(h) 2.69 2.43 2.39(i)
Net Cumulative Effect of
Accounting Changes $ - (1.16) - - -
Net Income (b) 6.2% $ 2.12(g) 2.15(h) 2.69 2.43 2.39(i)
Weighted Average Shares Outstanding (b) 87,019 89,757 90,186 90,186 90,186
Dividends Paid on Common Stock 9.2% $ 89,660 84,711 77,174 70,426 74,161(e)
Per Share (b) 11.7% $ 1.250 1.140 1.030 .940 .990(e)
Dividends Paid on Class B Common Stock 26.8% $ 17,301 15,788 14,270 12,975 13,596(e)
Per Share (b) 26.9% $ 1.135 1.035 .935 .850 .890(e)
Income from Continuing Operations
Before Accounting Changes
as a Percent of Net Sales 7.3%(c) 7.4%(d) 7.5% 7.6% 7.2%(f)
Depreciation 17.6% $ 114,821 100,124 84,434 72,735 61,725
Advertising 5.4% $ 120,629 130,009 137,631 117,049 146,297
Promotion 16.0% $ 419,164 444,546 398,577 325,465 315,242
Payroll 8.5% $ 472,997 469,564 433,162 398,661 372,780
Year-end Position and Statistics(a)
Capital Additions 11.9% $ 138,711 211,621 249,795 226,071 179,408
Total Assets 10.6% $ 2,890,981 2,855,091 2,672,909 2,341,822 2,078,828
Long-term Portion of Debt 4.3% $ 157,227 165,757 174,273 282,933 273,442
Stockholders' Equity 8.1% $ 1,441,100 1,412,344 1,465,279 1,335,251 1,243,537
Net Book Value Per Share (b) 9.0% $ 16.61 16.12 16.25 14.81 13.79
Operating Return on Average
Stockholders' Equity 18.5% 17.8% 17.3% 17.0% 16.6%
Operating Return on Average
Invested Capital 15.6% 15.0% 14.4% 13.8% 13.4%
Full-time Employees 14,000 14,300 13,700 14,000 12,700
Stockholders' Data
Outstanding Shares of Common Stock
and Class B Common Stock at
Year-end (b) 86,735 87,613 90,186 90,186 90,186
Market Price of Common Stock
at Year-end (b) 14.2% $ 48 3/8 49 47 44 3/8 37 1/2
Range During Year (b) $53 1/2-41 1/8 55 7/8-43 1/2 48 3/8-38 1/4 44 1/2-35 1/8 39 5/8-28 1/4
</TABLE>
Notes:
(a) All amounts for years prior to 1988 have been restated for discontinued
operations, where applicable. Operating Return on Average Stockholders'
Equity and Operating Return on Average Invested Capital have been
computed using Net Income, excluding the 1988 gain and 1985 loss on
disposal included in Discontinued Operations, the 1993 Net Cumulative
Effect of Accounting Changes, and the after-tax impacts of the 1990
Restructuring Gain, Net, the 1993 Gain on Sale of the Investment Interest
in Freia Marabou a.s (Freia), and the 1994 Restructuring Charge.
(b) All shares and per share amounts have been adjusted for the
three-for-one stock split effective September 15, 1986 and the two-for-one
stock split effective September 15, 1983.
(c) Calculated percent excludes the 1994 Restructuring Charge. Including
the charge, Income from Continuing Operations Before Accounting Changes
as a Percent of Net Sales was 5.1%.
(d) Calculated percent excludes the Gain on Sale of Investment Interest in
Freia. Including the gain, Income from Continuing Operations Before
Accounting Changes as a Percent of Net Sales was 8.5%.
(e) Amounts included a special dividend for 1990 of $11.2 million or $.15
per share of Common Stock and $2.1 million or $.135 per share of Class B
Common Stock.
(f) Calculated percent excludes the 1990 Restructuring Gain, Net.
Including the gain, Income from Continuing Operations Before Accounting
Changes as a Percent of Net Sales was 7.9%.
(g) Income Per Share from Continuing Operations Before Accounting Changes
and Net Income Per Share for 1994 included a $.92 per share restructuring
charge. Excluding the impact of this charge, Income Per Share from
Continuing Operations Before Accounting Changes and Net Income Per Share
would have been $3.04.
(h) Income Per Share from Continuing Operations Before Accounting Changes
and Net Income Per Share for 1993 included a $.45 per share gain on the
sale of the investment interest in Freia. Excluding the impact of this
gain, Income Per Share from Continuing Operations Before Accounting Changes
would have been $2.86.
(i) Income Per Share from Continuing Operations Before Accounting Changes
and Net Income Per Share for 1990 included a $.22 per share Restructuring
Gain, Net. Excluding the impact of this gain, Income Per Share from
Continuing Operations Before Accounting Changes and Net Income Per Share
would have been $2.17.
<PAGE>
<PAGE> Page Inside Back Cover
<TABLE>
HERSHEY FOODS CORPORATION
ELEVEN-YEAR CONSOLIDATED FINANCIAL SUMMARY
<CAPTION>
All dollar and share amounts in
thousands except market price
and per share statistics
1989 1988 1987 1986 1985 1984
<S> <C> <C> <C> <C> <C> <C>
Summary of Operations(a)
Net Sales $ 2,420,988 2,168,048 1,863,816 1,635,486 1,526,584 1,423,396
Cost of Sales $ 1,455,612 1,326,458 1,149,663 1,032,061 982,370 934,817
Selling, Marketing and Administrative $ 655,040 575,515 468,062 387,227 345,299 309,587
Restructuring (Charge) Gain, Net $ - - - - - -
Gain on Sale of Investment Interest $ - - - - - -
Interest Expense, Net $ 20,414 29,954 22,413 8,061 10,240 8,325
Income Taxes $ 118,868 91,615 99,604 100,931 91,910 82,986
Income from Continuing Operations
Before Accounting Changes $ 171,054 144,506 124,074 107,206 96,765 87,681
Net Cumulative Effect of
Accounting Changes $ - - - - - -
Discontinued Operations $ - 69,443 24,097 25,558 15,462 21,001
Net Income $ 171,054 213,949 148,171 132,764 112,227 108,682
Income Per Share:
From Continuing Operations
Before Accounting Changes(b) $ 1.90 1.60 1.38 1.15 1.03 .93
Net Cumulative Effect of
Accounting Changes $ - - - - - -
Net Income (b) $ 1.90 2.37 1.64 1.42 1.19 1.16
Weighted Average Shares Outstanding (b) 90,186 90,186 90,186 93,508 94,011 94,011
Dividends Paid on Common Stock $ 55,431 49,433 43,436 40,930 37,386 37,073
Per Share (b) $ .740 .660 .580 .520 .475 .413
Dividends Paid on Class B Common Stock $ 10,161 9,097 8,031 7,216 6,556 1,607
Per Share (b) $ .665 .595 .525 .472 .428 .105
Income from Continuing Operations
Before Accounting Changes
as a Percent of Net Sales 7.1% 6.7% 6.7% 6.6% 6.3% 6.2%
Depreciation $ 54,543 43,721 35,397 31,254 28,348 22,725
Advertising $ 121,182 99,082 97,033 83,600 77,135 71,070
Promotion $ 256,237 230,187 171,162 122,508 105,401 94,921
Payroll $ 340,129 298,483 263,529 238,742 222,267 208,395
Year-end Position and Statistics(a)
Capital Additions $ 162,032 101,682 68,504 74,452 61,361 45,258
Total Assets $ 1,814,101 1,764,665 1,544,354 1,262,332 1,116,074 1,052,161
Long-term Portion of Debt $ 216,108 233,025 280,900 185,676 86,986 103,155
Stockholders' Equity $ 1,117,050 1,005,866 832,410 727,941 727,899 660,928
Net Book Value Per Share (b) $ 12.39 11.15 9.23 8.07 7.74 7.03
Operating Return on Average
Stockholders' Equity 16.1% 17.5% 19.0% 18.2% 17.2% 17.3%
Operating Return on Average
Invested Capital 13.2% 13.3% 13.5% 13.5% 13.5% 13.5%
Full-time Employees 11,800 12,100 10,540 10,210 10,380 10,150
Stockholders' Data
Outstanding Shares of Common Stock
and Class B Common Stock
at Year-end (b) 90,186 90,186 90,186 90,186 94,011 94,011
Market Price of Common Stock at
Year-end (b) $ 35 7/8 26 24 1/2 24 5/8 17 1/8 12 7/8
Range During Year (b) $36 7/8-24 3/4 28 5/8-21 7/8 37 3/4-20 3/4 30-15 1/2 18 3/8-11 5/8 13 3/4-9 3/8
</TABLE>
Notes:
(a) All amounts for years prior to 1988 have been restated for discontinued
operations, where applicable. Operating Return on Average Stockholders'
Equity and Operating Return on Average Invested Capital have been
computed using Net Income, excluding the 1988 gain and 1985 loss on
disposal included in Discontinued Operations, the 1993 Net Cumulative
Effect of Accounting Changes, and the after-tax impacts of the 1990
Restructuring Gain, Net, the 1993 Gain on Sale of the Investment Interest
in Freia Marabou a.s (Freia), and the 1994 Restructuring Charge.
(b) All shares and per share amounts have been adjusted for the
three-for-one stock split effective September 15, 1986 and the two-for-one
stock split effective September 15, 1983.
<PAGE>
RESTATED Exhibit 19.i
HERSHEY FOODS CORPORATION
1987 KEY EMPLOYEE INCENTIVE PLAN
1. Establishment and Purpose
Hershey Foods Corporation (the "Corporation") hereby
establishes the 1987 Key Employee Incentive Plan (the "Plan").
The purpose of the Plan is to provide to selected key employees
of the Corporation and its subsidiaries (as defined below), upon
whose efforts the Corporation is dependent for the successful
conduct of its business, further incentive to continue and
increase their efforts as employees and to remain in the employ
of the Corporation and its subsidiaries.
The Plan continues the Annual Incentive Program ("AIP"),
with certain modifications, as in effect under the Corporation's
Management Incentive Plan ("MIP") established in 1975 and as
amended thereafter, pursuant to which participants are entitled
to receive cash awards based on achievement of performance goals
during annual performance cycles. The Plan also continues the
Long Term Incentive Program ("LTIP") portion of the MIP with
certain modifications. In addition to performance stock units
("Performance Stock Units"), the LTIP portion now also includes
nonqualified stock options for the purchase of Common Stock
("Options"); stock appreciation rights ("SARs"); and restricted
stock units ("Restricted Stock Units").
As used herein, (i) the term "Subsidiary Corporation" shall
mean any present or future corporation which is or would be a
"subsidiary corporation" of the Corporation as defined in Section
425 of the Internal Revenue Code of 1986 (the "Code"), and (ii)
the term "Corporation" defined above shall refer collectively to
Hershey Foods Corporation and its Subsidiary Corporations unless
the context indicates otherwise.
2. Stock Subject to the Plan
The aggregate number of shares which may be covered by
Performance Stock Units, Options, SARs and Restricted Stock Units
granted pursuant to the LTIP portion of the Plan is 6.5 million
(6,500,000) shares of the Corporation's Common Stock, $1.00 Par
Value (the "Common Stock"), subject to adjustment in accordance
with Section 12 below. The shares issued under this Plan may be
either authorized but unissued shares or shares acquired by the
Corporation through open market purchases or otherwise. In
addition to shares of Common Stock actually issued or distributed
under the Plan, there shall be deemed to have been issued a
number of shares equal to (i) the number of shares of Common
Stock in respect of which optionees utilize the manner of
exercise of, and payment for, Options as provided in Paragraph
7II(f) of this Plan, and (ii) the number of shares of Common
Stock which is equivalent in value to any cash amounts
distributed upon payment of Performance Stock Units, SARs or
Restricted Stock Units. For purposes of determining the charge
to be made pursuant to subpart (ii) against the shares of Common
Stock subject to the Plan, the value of a share of Common Stock
shall be its Fair Market Value as defined in Paragraph 4 when
awards are made with respect to Performance Stock Units, upon
exercise of SARs and upon expiration of the applicable
restriction period of Restricted Stock Units. Any shares subject
under the Plan to Performance Stock Units, Options, SARs or
Restricted Stock Units which, for any reason, expire or terminate
or are forfeited or surrendered shall again be available for
issuance under the Plan.
<PAGE>
<page 2
3. Administration
The Plan shall be administered by the Compensation and
Executive Organization Committee (the "Committee"), or any
successor committee, appointed by and consisting of not less than
three disinterested members of the Board of Directors (the
"Board") of the Corporation who shall not be eligible to
participate in the Plan. The Board may from time to time remove
and appoint members of the Committee in substitution for, or in
addition to, members previously appointed and may fill vacancies,
however caused, in the Committee. The Committee may adopt such
rules and regulations as it deems useful in governing its
affairs. Any action of the Committee with respect to the
administration of the Plan shall be taken by majority vote at a
Committee meeting or written consent of all Committee members.
Subject to the terms and conditions of the Plan, the
Committee shall have authority: (i) to construe and interpret
Plan provisions; (ii) to define the terms used in the Plan; (iii)
to prescribe, amend and rescind rules and regulations relating to
the Plan; (iv) to select particular employees to participate in
the Plan; (v) to determine the terms, conditions, form and amount
of grants, distributions or payments made to each participant,
including conditions upon and provisions for vesting, exercise
and acceleration of any grants, distributions or payment; (vi)
upon the request of a participant in the Plan, to approve and
determine the duration of leaves of absence which may be granted
to the participant without constituting a termination of his or
her employment for purposes of the Plan; and (vii) to make all
other determinations necessary or advisable for the
administration and operation of the Plan. The Committee shall
have the right to impose varying terms and conditions with
respect to each grant or award. All determinations and
interpretations made by the Committee shall be final, binding and
conclusive on all participants and on their legal representatives
and beneficiaries.
4. Fair Market Value
As used in the Plan (unless a different method of
calculation is required by applicable law, and except as
otherwise specifically provided in any Plan provision), "Fair
Market Value" on or as of any date shall mean (i) the closing
price of the Common Stock as reported in the New York Stock
Exchange Composite Transactions Report (or any other consolidated
transactions reporting system which subsequently may replace such
Composite Transactions Report) for the New York Stock Exchange
trading day immediately preceding such date, or if there are no
sales on such date, on the next preceding day on which there were
sales, or (ii) in the event that the Common Stock is no longer
listed for trading on the New York Stock Exchange, an amount
determined in accordance with standards adopted by the Committee.
5. Eligibility and Participation
Key employees of the Corporation or of any of its Subsidiary
Corporations, including officers and directors who are regular
employees but not members of the Committee, who in the opinion of
the Committee are in a position to contribute significantly to
the success of the Corporation or any Subsidiary Corporation,
division or operating unit thereof, shall be eligible for
selection to participate in the Plan. In making this selection
and in determining the form and amount of grants, distributions
and payments under the Plan, the Committee shall take into
account the duties of the respective employees, their present and
potential contributions to the success of the Corporation or any
<PAGE>
<PAGE> 3
Subsidiary Corporation, division or operating unit thereof, and
such other factors as the Committee may deem relevant in
connection with accomplishing the purposes of the Plan. An
employee who has been selected to participate may, if he or she
is otherwise eligible, receive more than one grant from time to
time, and may be granted any combination of contingent target
grants under the AIP or under the LTIP components of the Plan, as
the Committee shall determine.
6. Annual Incentive Program
The Committee may from time to time, subject to the
provisions of the Plan and such other terms and conditions as the
Committee may determine, establish contingent target grants for
those eligible employees it selects to participate in the AIP.
Each such contingent grant may be, but need not be, evidenced by
a written instrument, and shall be determined in relation to the
participant's level of responsibility in the Corporation and the
competitive compensation practices of other major businesses, and
such other factors as are deemed appropriate by the Committee.
(a) Awards actually earned by and paid to AIP participants
("AIP Awards") will be based primarily upon achievement of unit
and personal performance goals over a one-year performance cycle
as approved by the Committee.
(b) The Committee, within the limits of the Plan, shall
have full authority and discretion to determine the time or times
of establishing contingent target grants; to select from among
those eligible the employees to receive awards; to review
performance goals; to designate levels of awards to be earned in
relation to levels of achievement of performance goals; to adopt
such financial and nonfinancial performance or other criteria for
the payment of awards as it may determine from time to time; and
to establish such other measures as may be necessary to achieve
the objectives of the Plan.
(c) Aggregate annual AIP Awards shall not exceed six (6%)
percent of the excess of Before-Tax Income (defined for these
purposes as Net Income plus provision for Federal, state and
local income taxes and interest expense on long-term debt, but
after consideration of the cost of the Plan) over sixteen (16%)
percent of Total Invested Capital (defined for these purposes as
Stockholders' Equity plus Long-Term Debt plus Deferred Income
Taxes) determined as the average of such Total Invested Capital
at the beginning of the year and the end of each calendar quarter
of such year.
(d) AIP Awards as earned under the terms of the Plan shall
be paid in cash and may exceed or be less than the contingent
target grants, provided that payments do not exceed the maximum
permitted cost of the AIP calculated pursuant to subparagraph (c)
above. Payment shall normally be made as soon as possible
following the close of the year, but payment of all or any
portion may be deferred by the Committee.
7. Long Term Incentive Program
The LTIP consists of the following four components:
<PAGE>
<PAGE> 4
I. Performance Stock Units
The Committee may, subject to the provisions of the Plan and
such other terms and conditions as the Committee may determine,
grant Performance Stock Units to reflect the value of contingent
target grants established for each eligible employee selected for
participation. Each grant of Performance Stock Units may be, but
need not be, evidenced by a written instrument. Such contingent
target grants shall be determined in relation to the employee's
level of responsibility in the Corporation or any Subsidiary
Corporation, division or operating unit thereof, and the
competitive compensation practices of other major businesses.
(a) Awards actually earned by and paid to holders of
Performance Stock Units ("PSU Awards") will be based upon
achievement of performance goals over performance cycles as
approved by the Committee. Such performance cycles each shall
cover such period of time, not exceeding five years, as the
Committee from time to time shall determine.
(b) The Committee, within the limits of the Plan, shall
have full authority and discretion to determine the time or times
of establishing contingent target grants and the granting of
Performance Stock Units; to select from among those eligible the
employees to receive PSU Awards; to review performance goals; to
designate levels of awards to be earned in relation to levels of
achievement of performance goals; to adopt such financial and
nonfinancial performance or other criteria for the payment of PSU
Awards as it may determine from time to time; and to establish
such other measures as may be necessary to the objectives of the
Plan.
(c) Payments of PSU Awards shall be made in shares of
Common Stock or partly in cash as the Committee in its sole
discretion shall determine and shall be charged against the
shares available under the LTIP portion of the Plan as provided
in Paragraph 2; provided, however, that no fractional shares
shall be issued and any such fraction will be eliminated by
rounding downward to the nearest whole share. In any case in
which actual payment of a PSU Award is deferred as provided
below, a charge will be made against the available shares for the
number of shares equivalent to the dollar amount of the deferred
PSU Award.
(d) PSU Awards as earned under the terms of the Plan may
exceed or be less than the contingent target grants. Payments
shall normally be made as soon as possible following the close of
the year, but payment of all or any portion may be deferred by
the Committee.
II. Stock Options
The Committee may, from time to time, subject to the
provisions of the Plan and such other terms and conditions as it
may determine, grant nonqualified Options to purchase shares of
Common Stock of the Corporation to employees eligible to
participate in the Plan. Each grant of an Option shall be
evidenced by an agreement executed by the Corporation and the
optionee, and shall contain such terms and conditions and be in
such form as the Committee may from time to time approve, subject
to the following:
(a) The exercise price per share with respect to each
Option shall be determined by the Committee in its sole
discretion, but shall not be less than 100% of the Fair Market
Value of the Common Stock as of the date of the grant of the
Option.
<PAGE>
<PAGE> 5
(b) Options granted under the Plan shall be exercisable, in
such installments and for such periods, as shall be provided by
the Committee at the time of granting, but in no event shall any
Option granted extend for a period in excess of ten years from
the date of grant.
(c) Among other conditions that may be imposed by the
Committee, if deemed appropriate, are those relating to (i) the
period or periods and the conditions of exercisability of any
Option; (ii) the minimum periods during which grantees of Options
must be employed, or must hold Options before they may be
exercised; (iii) the minimum periods during which shares acquired
upon exercise must be held before sale or transfer shall be
permitted; (iv) conditions under which such Options or shares may
be subject to forfeiture; and (v) the frequency of exercise or
the minimum or maximum number of shares that may be acquired at
any one time.
(d) Exercise of an Option shall be by written notice
stating the election to exercise in the form and manner
determined by the Committee.
(e) The purchase price upon exercise of any Option shall be
paid in full by making payment (i) in cash; (ii) in whole or in
part by the delivery of a certificate or certificates of shares
of Common Stock of the Corporation, valued at its then Fair
Market Value; or (iii) by a combination of (i) and (ii).
(f) Notwithstanding subparagraph (e) above, any optionee
may make payment of the Option price through a simultaneous
exercise of his or her Option and sale of the shares thereby
acquired pursuant to a brokerage arrangement approved in advance
by the Committee to assure its conformity with the terms and
conditions of the Plan.
(g) The Committee may require the surrender of outstanding
Options as a condition to the grant of new Options.
(h) Notwithstanding any other provision of the Plan or of
any Option agreement between the Corporation and an employee,
upon the occurrence of a Change in Control, each outstanding
Option held by a participant who is an employee of the
Corporation or any Subsidiary Corporation shall become fully
vested and exercisable notwithstanding any vesting schedule or
installment schedule relating to the exercisability of such
Option contained in the applicable Option agreement or otherwise
established at the time of grant of the Option.
(i) For purposes of this Plan, a "Change in Control"
means:
(1) The acquisition or holding by any Person of
beneficial ownership (within the meaning of Section 13(d) under
the Securities Exchange Act of 1934 and the rules and regulations
promulgated thereunder (the "Exchange Act")) of shares of the
Common Stock and/or the Class B Common Stock of the Corporation
representing 25% or more of either (i) the total number of then
outstanding shares of both Common Stock and Class B Common Stock
of the Corporation (the "Outstanding Corporation Stock") or
(ii) the combined voting power of the then outstanding voting
securities of the Corporation entitled to vote generally in the
election of directors (the "Outstanding Corporation Voting
Power"), provided that, at the time of such acquisition or
holding of beneficial ownership of any such shares, the Hershey
Trust does not beneficially own more than 50% of the Outstanding
Corporation Voting Power; and provided, further, that any such
acquisition or holding of beneficial ownership of
<PAGE>
<PAGE> 6
shares of either Common Stock or Class B Common Stock of the Corporation by
any of the following entities shall not by itself constitute such
a Change in Control hereunder: (i) the Hershey Trust; (ii) any
trust established by the Corporation, or by any Subsidiary, for
the benefit of the Corporation and/or its employees or those of
any Subsidiary; or (iii) any employee benefit plan (or related
trust) sponsored or maintained by the Corporation or by any
Subsidiary; or
(2) The approval by the stockholders of the
Corporation of any merger, reorganization, recapitalization,
consolidation or other form of business combination (a "Business
Combination") if, following consummation of such Business
Combination, the Hershey Trust does not beneficially own more
than 50% of the total voting power of all outstanding voting
securities of the surviving entity or entities; or
(3) The approval by the stockholders of the
Corporation of (i) any sale or other disposition of all or
substantially all of the assets of the Corporation, other than to
a corporation as to which the Hershey Trust beneficially owns
more than 50% of the total voting power of all outstanding voting
securities, or (ii) a liquidation or dissolution of the
Corporation.
For purposes of this Plan: (i) "Hershey Trust" means either
or both of (a) the Hershey Trust Company, a Pennsylvania
corporation, as Trustee for the Milton Hershey School, or
any successor to the Hershey Trust Company as such trustee,
and (b) the Milton Hershey School, a Pennsylvania
not-for-profit corporation; and (ii) "Person" shall have the
meaning given in Section 3(a)(9) of the Exchange Act, as
modified and used in Sections 13(d)(3) and 14(d) thereof.
(j) For purposes of this Plan, a "Potential Change in
Control" means:
(1) The Hershey Trust, or any person acting or
purporting to act on its (or their) behalf, makes a public
announcement that it (or they), or its (or their) Board of
Trustees or Board of Governors or any other responsible
official, (i) intends to take, (ii) is taking or (iii) has
taken actions which would lead to a Change in Control (a
"public announcement" being defined for this purpose as any
statement quoted or otherwise reported in any print,
broadcast, wire service or other means of publication
available to the public in any locality in which any
employee of the Corporation is regularly located);
(2) The Hershey Trust enters into any contract,
agreement or other arrangement with any Person which would
lead to a Change in Control; or
(3) The Board approves a transaction described in
subsection (2) or (3) of the definition of Change in Control
contained in subparagraph (i) of Paragraph 7II hereof.
(k) In the event that a transaction which would constitute
a Change in Control if approved by the stockholders of the
Corporation is to be submitted to such stockholders for their
approval, each participant who is an employee and who holds an
Option granted under the Plan at the time scheduled for the
taking of such vote, whether or not then exercisable, shall have
the right to receive a notice at least ten (10) business days
prior to the date on which such vote is to be taken. Such notice
shall set forth the date on which such vote of stockholders is to
be taken, a description of the transaction being
<PAGE>
<PAGE> 7
proposed to stockholders for such approval, a description of the provisions
of subparagraph (h) of Paragraph 7II of the Plan and a
description of the impact thereof on such participant in the
event that such stockholder approval is obtained. Such notice
shall also set forth the manner in which and price at which all
Options then held by each such participant could be exercised
upon the obtaining of such stockholder approval.
III. Stock Appreciation Rights
The Committee may, from time to time, subject to the
provisions of the Plan and such other terms and conditions as the
Committee may determine, grant SARs to employees eligible to
participate in the Plan. SARs shall be evidenced by an agreement
executed by the Corporation and the holder, and shall be subject
to such terms and conditions consistent with the Plan as the
Committee shall impose from time to time, including the
following:
(a) SARs may, but need not, relate to Options granted under
the Plan, as the Committee shall determine from time to time. In
no event shall any SARs granted extend for a period in excess of
ten years from the date of grant.
(b) A holder shall exercise his or her SARs by giving
written notice of such exercise in the form and manner determined
by the Committee, and the date upon which such written notice is
received by the Corporation shall be the exercise date for the
SARs.
(c) A holder of SARs shall be entitled to receive upon
exercise the excess of the Fair Market Value of a share of Common
Stock at the time of exercise over the Fair Market Value of a
share at the time the SARs were granted, multiplied by the number
of shares with respect to which the SARs relate.
(d) In the sole discretion of the Committee, the amount
payable to the holder upon exercise of SARs may be paid either in
Common Stock or in cash or in a combination thereof. To the
extent paid in Common Stock, the value of the Common Stock that
shall be distributed shall be the Fair Market Value of a share of
Common Stock upon exercise of the SARs as provided in Paragraph
2; provided, however, that no fractional shares shall be issued
and any such fraction will be eliminated by rounding downward to
the nearest whole share.
(e) In the sole discretion of the Committee, SARs related
to specific Options may be exercisable only upon surrender of all
or a portion of the related Option, or may be exercisable, in
whole or in part, only at such times and to the extent that the
related Option is exercisable, and the number of shares
purchasable pursuant to the related Option may be reduced to the
extent of the number of shares with respect to which the SARs are
exercised.
(f) In lieu of receiving payment at the time of exercise of
SARs, payment of all or any portion may be deferred by the
Committee.
(g) No SARs may be exercised during the first six months
following grant. Additionally, in the case of a person holding
SARs who is, or within the preceding six months has been, a
director or an officer of the Corporation for purposes of Section
16(b) of the Securities Exchange Act of 1934, as amended, no cash
payment may be made upon exercise to such person except during
any period beginning on the third business day following the date
of release of a summary statement of the
<PAGE>
<PAGE> 8
Corporation's quarterly or annual sales and earnings and ending on the
twelfth business day following such date.
IV. Restricted Stock Units
The Committee may, from time to time, subject to the
provisions of the Plan and such other terms and conditions as it
may determine, grant Restricted Stock Units to employees eligible
to participate in the Plan. Each grant of Restricted Stock Units
shall be evidenced by a written instrument which shall state the
number of Restricted Stock Units covered by the grant, and shall
contain such terms and conditions and be in such form as the
Committee may from time to time approve, subject to the
following:
(a) Each Restricted Stock Unit shall be equivalent in value
to a share of Common Stock.
(b) Vesting of each grant of Restricted Stock Units shall
require the holder to remain in the employment of the Corporation
or a Subsidiary Corporation for a prescribed period (a
"Restriction Period"). The Committee shall determine the
Restriction Period or Periods which shall apply to the shares of
Common Stock covered by each grant of Restricted Stock Units.
Except as otherwise determined by the Committee and provided in
the written instrument granting the Restricted Stock Units, and
except as otherwise provided in Paragraph 8, all Restricted Stock
Units granted to a participant under the Plan shall terminate
upon termination of the participant's employment with the
Corporation or any Subsidiary Corporation before the end of the
Restriction Period or Periods applicable to such Restricted Stock
Units, and in such event the holder shall not be entitled to
receive any payment with respect to those Restricted Stock Units.
(c) Upon expiration of the Restriction Period or Periods
applicable to each grant of Restricted Stock Units, the holder
shall, without payment on his part, be entitled to receive
payment in an amount equal to the aggregate Fair Market Value of
the shares of Common Stock covered by such grant upon such
expiration. Such payment may be made in cash, in shares of
Common Stock equal to the number of Restricted Stock Units with
respect to which such payment is made, or in any combination
thereof, as the Committee in its sole discretion shall determine.
Any payment in cash shall reduce the number of shares of Common
Stock available under the Plan as provided in Paragraph 2, to the
extent of the number of Restricted Stock Units to which such
payment relates. Further upon such expiration, the holder shall
be entitled to receive a cash payment in an amount equal to each
cash dividend the Corporation would have paid to such holder
during the term of those Restricted Stock Units as if the holder
had been the owner of record of the shares of Common Stock
covered by such Restricted Stock Units on the record date for the
payment of such dividend.
(d) In lieu of receiving payment at the time of expiration
of the Restriction Period or Periods, payment of all or any
portion may be deferred by the Committee.
8. Termination of Employment
Upon termination of the employment with the Corporation of
any participant, such participant's rights with respect to any
contingent target grants under the AIP, or any Performance Stock
Units, Options, SARs or Restricted Stock Units granted under the
LTIP, shall be as follows:
<PAGE>
<PAGE> 9
(a) In the event that the participant is terminated or
discharged by the Corporation as the result of the participant
having engaged in fraud, dishonesty, theft, embezzlement or
similar conduct, or for any other reason, the participant's
rights and interests under the Plan shall immediately terminate
upon notice of termination of employment. Upon the occurrence of
a Potential Change in Control (as defined in subparagraph (j) of
Paragraph 7II hereof) and for a period of one year thereafter,
and upon the occurrence of a Change in Control (as defined in
subparagraph (i) of Paragraph 7II hereof), the following special
provisions and notice requirements shall be applicable in the
event of the termination of the employment of any participant
holding an Option under the Plan: (i) in no event may a notice
of termination of employment be issued to such a participant
unless at least ten (10) business days prior to the effective
date of such termination the participant is provided with a
written notice of intent to terminate the participant's
employment which sets forth in reasonable detail the reason for
such intent to terminate, the date on which such termination is
to be effective, and a description of the participant's rights
under this Plan and under the agreements granting such Option or
Options, including the fact that no such Option may be exercised
after such termination has become effective and the manner,
extent and price at which all Options then held by such
participant may be exercised; and (ii) such notice of intent to
terminate a participant's employment shall not be considered a
"notice of termination of employment" for purposes of the first
sentence of this Paragraph 8(a). This Paragraph 8(a) is intended
only to provide for a requirement of notice to terminate upon the
occurrence of the events set forth herein and shall not be
construed to create an obligation of continued employment or a
contract of employment in any manner or to otherwise affect or
limit the Corporation's ability to terminate the employment of
any participant holding an Option under the Plan.
(b) If a participant terminates employment with the
Corporation as the result, in the sole judgment of the Committee,
of his or her becoming totally disabled (in which event
termination will be deemed to occur on the date the Committee
makes such determination); or if a participant should die or
(except as to Restricted Stock Units) retire while employed by
the Corporation or any of its Subsidiary Corporations, then the
participant or, as the case may be, the person or persons to whom
the participant's interest under the Plan shall pass by will or
by the laws of descent and distribution (the "Estate"), shall
have the following rights:
(i) the grantee of a contingent AIP grant or the Estate
shall be entitled to receive payment of an AIP award as, and
to the extent, determined by the Committee.
(ii) if the holder of Performance Stock Units shall have
been employed for at least two-thirds of the related
performance cycle prior to the date of termination or death,
then, except as otherwise provided in the written instrument
(if any) evidencing the Performance Stock Units, and subject
to any further adjustments the Committee may make in its
absolute discretion, the participant or the Estate shall be
entitled to receive payment of a PSU Award upon the
expiration of the related performance cycle, provided that
such award shall be adjusted by multiplying the amount
thereof by a fraction, the numerator of which shall be the
number of full and partial calendar months between the date
of the beginning of each such performance cycle and the date
of termination or death, and the denominator of which shall
be the number of full and partial calendar months from the
date of the beginning of the performance cycle to the end of
the said performance cycle.
(iii) except as otherwise provided in the stock option
agreement or SARs agreement, the holder or the Estate shall
be entitled to exercise any Option or SARs to the extent (if
at all) 10 the holder's right to exercise had accrued at the
<PAGE>
<PAGE> 10
date of retirement, total disability or death and had not
been previously exercised, for a period of three years from
such date, or for such longer period as the Committee may
determine in the case of financial hardship or other unusual
circumstances (subject to the maximum exercise period for
Options and SAR's specified in Paragraphs 7II(b) and 7III(a)
hereof, respectively).
(iv) except as otherwise provided in the written instrument
evidencing the Restricted Stock Units, upon death or
termination due to total disability the holder or the Estate
shall be entitled to receive payment in respect of the
Restricted Stock Units, provided that such Units shall be
adjusted by multiplying the amount thereof by a fraction,
the numerator of which shall be the number of full and
partial calendar months between the date of grant of such
Units and the date of death or termination, and the
denominator of which shall be the number of full and partial
calendar months from the date of the grant to the end of the
Restriction Period. Upon retirement, the participant's
rights with respect to Restricted Stock Units shall
immediately terminate.
(c) In the event of resignation by the participant, the
participant's rights and interests under the Plan shall
immediately terminate upon such resignation; provided, however,
that the Committee shall have the absolute discretion to review
the reasons and circumstances of the resignation and to determine
whether, alternatively, and to what extent, if any, the
participant may continue to hold any rights or interests under
the Plan.
(d) A transfer of a participant's employment without an
intervening period from the Corporation to a Subsidiary
Corporation or vice versa, or from one Subsidiary Corporation to
another, shall not be deemed a termination of employment.
(e) The Committee shall be authorized to make all
determinations and calculations required by this Paragraph 8,
including any determinations necessary to establish the reason
for terminations of employment for purposes of the Plan, which
determinations and calculations shall be conclusive and binding
on any affected participants and Estates.
9. Additional Requirements
No Performance Stock Units, Options, SARs or Restricted
Stock Units (hereinafter collectively an "Interest") granted
pursuant to the Plan shall be exercisable or realized in whole or
in part, and the Corporation shall not be obligated to sell,
distribute or issue any shares subject to any such Interest, if
such exercise and sale would, in the opinion of counsel for the
Corporation, violate the Securities Act of 1933, as amended (or
other Federal or state statutes having similar requirements).
Each Interest shall be subject to the further requirement that,
if at any time the Board of Directors shall determine in its
discretion that the listing or qualification of the shares
relating or subject to such Interest under any securities
exchange requirements or under any applicable law, or the consent
or approval of any governmental regulatory body, is necessary or
desirable as a condition of, or in connection with, the granting
of such Interest or the distribution or issue of shares
thereunder, such Interest may not be exercised in whole or in
part unless such listing, qualification, consent or approval
shall have been effected or obtained free of any condition not
acceptable to the Board of Directors.
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<PAGE> 11
Interests may be subject to restrictions as to resale or
other disposition and to such other provisions as may be
appropriate to comply with Federal and state securities laws and
stock exchange requirements, and the exercise of any Interest or
entitlement to payment thereunder may be contingent upon receipt
from the holder (or any other person permitted by this Plan to
exercise any Interest or receive any distribution hereunder) of a
representation that at the time of such exercise it is his or her
then present intention to acquire the shares being distributed
for investment and not for resale.
10. Nontransferability
Contingent AIP grants, Performance Stock Units, Options,
SARs and Restricted Stock Units granted under the Plan to an
employee shall be nonassignable and shall not be transferable by
him or her otherwise than by will or the laws of descent and
distribution, and shall be exercisable, during the employee's
lifetime, only by the employee or the employee's guardian or
legal representative.
11. Disclaimer of Rights
No provision in the Plan or any contingent target AIP
grants, Performance Stock Units, Options, SARs or Restricted
Stock Units granted pursuant to the Plan shall be construed to
confer upon the participant any right to be employed by the
Corporation or by any Subsidiary Corporation, or to interfere in
any way with the right and authority of the Corporation or any
Subsidiary Corporation either to increase or decrease the
compensation of the participant at any time, or to terminate any
relationship of employment between the participant and the
Corporation or any of its Subsidiary Corporations.
Participants under the Plan shall have none of the rights of
a stockholder of the Corporation with respect to shares subject
to Performance Stock Units, Options, SARs or Restricted Stock
Units unless and until such shares have been issued to him or
her.
12. Stock Adjustments
In the event that the shares of Common Stock, as presently
constituted, shall be changed into or exchanged for a different
number or kind of shares of stock or other securities of the
Corporation or of another corporation (whether by reason of
merger, consolidation, recapitalization, reclassification, stock
split, combination of shares or otherwise), or if the number of
such shares of Common Stock shall be increased through the
payment of a stock dividend, or a dividend on the shares of
Common Stock of rights or warrants to purchase securities of the
Corporation shall be made, then there shall be substituted for or
added to each share available under and subject to the Plan as
provided in Paragraph 2 hereof, and each share theretofore
appropriated or thereafter subject or which may become subject to
Performance Stock Units, Options, SARs or Restricted Stock Units
under the Plan, the number of kind of shares of stock or other
securities into which each outstanding share of Common Stock
shall be so changed or for which each such share shall be
exchanged or to which each such share shall be entitled, as the
case may be. Outstanding Options and SARs also shall be
appropriately amended as to price and other terms as may be
necessary to reflect the foregoing events. In the event there
shall be any other change in the number or kind of the
outstanding shares of Common Stock, or of any stock or other
securities into which the Common Stock shall have been changed or
for which it shall have been exchanged, then if the Board of
Directors shall, in its sole discretion, determine that such
change equitably requires an adjustment in the shares available
under and subject to the Plan, or in any Performance Stock Units,
Options, SARs or Restricted Stock Units theretofore granted or
<PAGE>
<PAGE> 12
which may be granted under the Plan, such adjustments shall be
made in accordance with such determination.
No fractional shares of Common Stock or units of other
securities shall be issued pursuant to any such adjustment, and
any fractions resulting from any such adjustment shall be
eliminated in each case by rounding downward to the nearest whole
share or unit.
13. Effective Date and Termination of Plan
The Plan shall become effective upon adoption by the Board
of Directors of the Corporation, provided such adoption is
approved by the stockholders, within twelve months of adoption by
the Board of Directors. Contingent target AIP grants,
Performance Stock Units, Options, SARs and Restricted Stock Units
under this Plan, granted before approval of the Plan by the
stockholders, shall be granted subject to such approval and shall
not be exercisable or payable before such approval.
The Board of Directors at any time may terminate the Plan,
but such termination shall not alter or impair any of the rights
or obligations under any contingent target AIP grants,
Performance Stock Units, Options, SARs or Restricted Stock Units
theretofore granted under the Plan unless the affected
participant shall so consent.
14. Prior Plan
Effective upon the adoption of this Plan by the Board of
Directors, no additional grants of contingent target grants under
the AIP or of Performance Stock Units shall be made under the
MIP; provided, that any payments of AIP awards or deferrals
thereof made with respect to prior grants of contingent AIP
awards, any prior grants of any LTIP Units, and any payments of
LTIP awards or deferrals thereof made with respect to such prior
grants, shall not be affected. Notwithstanding the foregoing, to
the extent the remaining shares reserved for use under the LTIP
portion of the MIP are insufficient for any LTIP awards under
performance cycles that began prior to January 1, 1987, shares
available under this Plan may be used for such purpose.
15. Application of Funds
The proceeds received by the Corporation from the sale of
capital stock pursuant to Options will be used for general
corporate purposes.
16. No Obligation to Exercise Option or SARs
The granting of an Option or SARs shall impose no obligation
upon the optionee to exercise such Option or SARs.
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<PAGE> 13
17. Amendment
The Board of Directors by majority vote, at any time and
from time to time, may amend the Plan in such respects as it
shall deem advisable, to conform to any change in any applicable
law or in any other respect, except that without the approval of
the stockholders no amendment shall be made to the Plan which
shall:
(a) Increase the aggregate number of shares of Common Stock
of the Corporation available under the LTIP portion of the Plan
(except by operation of the adjustment provisions of the Plan);
(b) Remove the administration of the Plan from the
Committee;
(c) Reduce the exercise price of outstanding Options, or
extend the maximum term of Performance Stock Units, Options, SARs
or Restricted Stock Units;
(d) Materially affect any outstanding contingent target AIP
grants, Performance Stock Units, Options, SARs or Restricted
Stock Units granted under the Plan without the written consent of
the holders affected;
(e) Materially increase the benefits accruing to
participants under the Plan; or
(f) Materially modify the requirements as to eligibility
for participation in the Plan;
provided, that any amendment to the Plan shall require approval
of the stockholders if, in the opinion of counsel to the
Corporation, such approval is required by Section 16(b) or any
other section of the Securities Exchange Act of 1934, or by any
other Federal or state law or any regulations or rules
promulgated thereunder. Notwithstanding the foregoing, the Plan
may not be terminated or amended in a manner adverse to the
interests of any participant (without the consent of the
participant) either: (a) after a Potential Change in Control
occurs and for one (1) year following the cessation of a
Potential Change in Control, or (b) for a two year period
beginning as of the date of a Change in Control (the "Coverage
Period"). Upon the expiration of the Coverage Period,
subparagraph (k) of Paragraph 7II of the Plan and Paragraph 8(a)
of the Plan may not be amended in any manner that would adversely
affect any participant without the consent of the participant.
As amended August 2, 1994
<PAGE>
<PAGE>
HERSHEY FOODS CORPORATION
AMENDED AND RESTATED
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
EFFECTIVE November 1,1994
<PAGE>
<PAGE> 1
HERSHEY FOODS CORPORATION Exhibit 19.ii
AMENDED AND RESTATED
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
1. Purpose of Plan. The purpose of the Supplemental
Executive Retirement Plan (hereinafter called the "Plan") is to
obtain for Hershey Foods Corporation (hereinafter called the
"Corporation") all of the benefits which flow from maintaining a
strong management team by providing to executive and upper level
management employees the means to continue their attained standard
of living during retirement and by offering benefits that will
assist in attracting executive and upper level management
employees of outstanding ability.
2. Definitions. The following words and phrases as used
in the Plan shall have the following meanings, unless a different
meaning is plainly required by the context:
a) "Cause" means the willful engaging by the Participant in
illegal conduct or gross misconduct which is materially and
demonstrably injurious to the Corporation.
For purposes of this definition, no act or failure to act, on
the part of the Participant, shall be considered "willful" unless
it is done, or omitted to be done, by the Participant in bad faith
and without reasonable belief that the Participant's action or
omission was in the best interest of the Corporation. Any act or
failure to act, based upon prior approval given by the Board or
upon the instruction or with the approval of the Chief Executive
Officer or the Participant's superior or based upon the advice of
counsel for the Corporation shall be conclusively presumed to be
done, or omitted to be done, by the Participant in good faith and
in the best interest of the Corporation.
b) "Committee" means the Compensation and Executive
Organization Committee of the Board of Directors of the
Corporation (the "Board").
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<PAGE> 2
c) "Deferred Retirement Date" means the first day of the
month following a Participant's termination of employment with the
Corporation provided such termination occurs after his Normal
Retirement Date.
d) "Disability" or "Disabled", for purposes of this Plan,
shall have the same meaning as provided in Section 1.16 of the
Retirement Plan, as such section may be amended from time to time.
e) "Early Retirement Date" means the first day of any month
following a Participant's termination of employment with the
Corporation which is coincident with or following a Participant's
fifty-fifth (55th) birthday and prior to the Participant's Normal
Retirement Date.
f) "Final Average Compensation" means the sum of (1) the
highest annual average of a Participant's basic salary paid or
accrued over any thirty-six (36) consecutive month period during
his last ten (10) years of employment with the Corporation and (2)
the highest annual average of his annual awards under the Annual
Incentive Program (hereinafter called the "AIP") of the
Corporation's Key Employee Incentive Plan ("KEIP") paid or
accrued over any five (5) consecutive calendar years during his
last ten (10) years of employment with the Corporation. If a
Participant dies, retires, or suffers a Disability during a
calendar year and only a partial AIP award is made for that year,
for purposes of the Plan, his AIP award for such year will be
considered to equal the award actually made divided by the
fraction of such year that he was employed by the Corporation
prior to his death, retirement or Disability. If a Participant
otherwise terminates employment with the Corporation during a
calendar year, his AIP award for that year for purposes of the
Plan will be considered to be zero (0), regardless of whether any
AIP award is actually made for that year.
g) "Normal Retirement Date" means, for the purposes of this
Plan, the first day of the month nearest a Participant's sixty-
fifth (65th) birthday, except that if his birthday is equally near
the first of two calendar months, the first day of the month prior
to his sixty-fifth (65th) birthday shall be his Normal Retirement
Date.
<PAGE>
<PAGE> 3
h) "Participant" means an employee of the Corporation who is
eligible to receive a benefit under the Plan in accordance with
the provisions of Paragraph 3 (i.e., has attained age 55, has ten
(10) Years of Service and has participated in the performance
share unit portion of the KEIP for at least five (5) of his last
ten (10) years of employment with the Corporation).
i) "Retirement Plan" means the Corporation's Retirement
Plan, amended and restated effective January 1, 1989, as in effect
from time to time and any successor plan thereto.
j) "Years of Service", for purposes of this Plan, shall have
the same meaning as provided in Section 1.56 of the Retirement
Plan, as such section may be amended from time to time.
3. Eligibility. An employee of the Corporation will be
eligible to receive a benefit pursuant to Section 4 of the Plan
if, at the time of his termination of employment with the
Corporation, such employee (i) is at least 55 years of age, (ii)
has ten (10) Years of Service, and (iii) has participated in the
performance share unit portion of the KEIP for at least five (5)
of his last ten (10) years of employment with the Corporation. No
Participant shall be entitled to receive any benefits under the
Plan if his employment with the Corporation is terminated for
Cause. Notwithstanding the above, an employee whose employment is
terminated with the Corporation prior to his Normal Retirement
Date for reason of Disability will be treated as provided for in
Paragraph 4.c.
4. Retirement Benefits.
a. Normal Retirement Benefit. An employee who qualifies as
a Participant, and who retires (or whose employment is otherwise
terminated, other than for Cause) on or after his Normal
Retirement Date shall be entitled under the Plan to receive a
normal retirement benefit which shall be an annual benefit,
payable in monthly installments, equal to:
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<PAGE> 4
(1) the product of three and two-thirds
percent (3 2/3%) of his Final Average Compensation and his Years of Service
not in excess of fifteen (15) Years of Service;
reduced by:
(2) one hundred percent (100%) of the
Participant's retirement benefit under the Retirement Plan and any
other tax-qualified defined benefit pension plan maintained by the
Corporation or any affiliate thereof or any defined benefit
pension plan maintained by any other entity, payable as a life
annuity commencing at his Normal Retirement Date or his Deferred
Retirement Date if he retires after his Normal Retirement Date,
regardless of whether such benefit payment is in that form or
begins at that time; and
(3) one hundred percent (100%) of the
primary social security benefit to which the Participant would be
entitled on his Normal Retirement Date or his Deferred Retirement
Date if he retires after his Normal Retirement Date regardless of
whether he receives any portion of such primary Social Security
benefit on such date.
Payment of such benefit shall commence on
his Normal Retirement Date if he retires (or otherwise has his
employment terminated, other than for Cause) on such date and on
his Deferred Retirement Date if he retires (or otherwise has his
employment terminated, other than for Cause) after his Normal
Retirement Date.
b. Early Retirement Benefit. An employee who qualifies
as a Participant, and who retires (or whose employment is
otherwise terminated, other than for Cause) on or after his Early
Retirement Date and prior to his Normal Retirement Date shall be
entitled under the Plan to receive an early retirement benefit
which shall be an annual benefit payable in monthly installments,
equal to:
(1) the product of three and two-thirds
percent (3 2/3%) of his Final Average Compensation and his Years
of Service not in excess of fifteen (15) Years of Service;
<PAGE>
<PAGE> 5
reduced by:
(2) one hundred percent (100%) of his
retirement benefit under the Retirement Plan and any other tax-
qualified defined benefit pension plan maintained by the
Corporation or any affiliate thereof or any defined benefit
pension plan maintained by any other entity, payable as a life
annuity commencing at his Early Retirement Date or the first date
thereafter on which such benefits would be payable if they are not
payable on his Early Retirement Date regardless of whether such
benefit payment is in that form or begins at that time; and
(3) one hundred percent (100%) of
the primary Social Security benefit to which the Participant would
be entitled on his Early Retirement Date or the first date
thereafter on which such benefits would be payable if they are not
payable on his Early Retirement Date regardless of whether he
receives any portion of such primary Social Security benefit on
such date; and
(4) the product of (a) the difference
between (1) and the sum of (2) and (3), (b) five-twelfths of a
percent (5/12%), and (c) the number of complete calendar months by
which the Participant's date of termination of employment precedes
his sixtieth (60th) birthday.
Payment of such benefit shall commence on the first day
of the month coincident with the Participant's retirement or other
termination of employment, other than for Cause.
c. Disability Retirement Benefit - If an employee who
is an active participant in the performance share unit portion of
the KEIP suffers a Disability prior to his Normal Retirement Date
and while employed by the Corporation, the period of his
Disability will be recognized as Years of Service and as years of
participation in the performance share unit portion of the KEIP
under the Plan. If such Disability continues to his Normal
<PAGE>
<PAGE> 6
Retirement Date, for purposes of the Plan, he will retire on that
date and will be entitled to a normal retirement benefit
calculated in accordance with Paragraph 4.a. commencing on that
date. In calculating the benefit under Paragraph 4.a., the
Participant's Final Average Compensation shall be equal to his
annual base compensation immediately prior to his Disability plus
the average of his AIP earned during the three (3) years
immediately prior to the commencement of his Disability.
d. Pre-Retirement Death Benefit - If a Participant
dies before his employment by the Corporation terminates, his
designated beneficiary(ies), or his estate if he has not
designated any beneficiary or beneficiaries in accordance with
procedures established by the Committee, shall receive within ten
(10) days of the Participant's death a death benefit equal to the
lump sum present value of one hundred percent (100%) of the
retirement benefit that would have been payable to the Participant
under Paragraphs 4.a. or 4.b. (including the spousal survivor
benefit payable pursuant to Paragraph 4.e. with respect to any
Participant survived by a spouse) if he had retired on the date of
his death. The lump sum present value of the retirement benefit
shall be calculated using: (i) the 83 GAM mortality tables; and
(ii) an interest rate equal to 100% of the interest rate that
would be used by the Pension Benefit Guaranty Corporation (as of
the date of the Participant's death) for purposes of determining
the present value of a lump sum distribution on plan termination.
e. Post-Retirement Death Benefit - If a Participant
who is receiving monthly retirement benefits under this Plan
following his termination of employment by the Corporation dies,
his surviving spouse, if he is survived by a spouse, shall be
entitled to receive a death benefit which shall be a monthly
payment for the spouse's life, beginning on the first day of the
month following the Participant's death, equal to:
(1) fifty percent (50%) of the monthly
retirement benefit to which the Participant was entitled under the
Plan prior to his death;
reduced by:
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<PAGE> 7
(2) the monthly annuity value of any
life insurance provided by the Corporation or any affiliate
thereof for retired employees that is in excess of post-retirement
group term life insurance regularly provided by the Corporation or
any affiliate thereof.
5. Administration of the Plan. The Committee is charged
with the administration of the Plan. It shall have full power and
authority to construe and interpret the Plan. Its decisions shall
be final, conclusive and binding on all parties. Subject to
Paragraph 10 of this Plan, the Committee shall also have the
power, in its sole discretion, at any time (i) to waive, in whole
or in part, application of any of the eligibility requirements of
Paragraph 3 or of the benefit reduction factors in Paragraph 4.a.
and 4.b. and (ii) to determine the timing and form of payment of
any benefit under the Plan, in the case of any individual
Participant or other employee of the Corporation participating in,
or who has participated in, the performance share unit portion of
the KEIP.
6. Optional Forms of Payment
In lieu of the monthly retirement benefit (including the
spousal survivor benefit payable pursuant to Paragraph 4.e.
hereof) payable pursuant to Paragraph 4.a. or 4.b. hereof to a
Participant (and his surviving spouse) who retires (or whose
employment is terminated other than for Cause) after August 2,
1994 (such benefit payable to a Participant and/or his surviving
spouse is herein referred to for purposes of this Paragraph 6 as
the "Applicable Retirement Benefit"), such Participant may elect
to receive the following form of benefit payment:
A lump sum cash payment, payable to the Participant within
ten (10) days after the Participant's date of retirement (or the
Participant's date of termination of employment other than for
Cause), equal to the actuarial present value of the Applicable
Retirement Benefit, calculated using: (i) the 83 GAM mortality
tables; and (ii) an interest rate equal to 100% of the interest
rate that would be used by the Pension Benefit Guaranty
Corporation (as of the month immediately preceding the date of the
Participant's retirement, calculated in accordance with the
<PAGE>
<PAGE> 8
Corporation's practices for determining retirement benefits) for
purposes of determining the present value of a lump sum
distribution on plan termination.
Any such election must be made at least one hundred (180)
days prior to the date that the Applicable Retirement Benefit
payments would otherwise become payable.
7. Payment Upon Change in Control
a. Any former employee or the surviving spouse of an employee
or former employee who is receiving a benefit under Paragraphs
4.a., 4.b., 4.d. or 4.e. hereof (or pursuant to the terms of any
version of this Plan) at the time of a Change in Control
(collectively or individually, "SERP Recipient") shall receive, in
lieu of the future monthly retirement benefit (including the
spousal survivor benefit in the case of a benefit under Paragraph
4.a. or 4.b.) to which he is entitled (such future benefit payable
to the SERP Recipient is herein referred to for purposes of this
paragraph 7.a. as the "Future Retirement Benefit"), a lump sum
cash payment, payable to the SERP Recipient, as applicable, within
ten (10) days after a Change in Control (or such later date that
is forty-five (45) days after the notice required by the following
provisions of this Paragraph 7.a. is provided to the applicable
SERP Recipient), equal to the actuarial present value of his
Future Retirement Benefit, calculated using: (i) the 83 GAM
mortality tables; and (ii) an interest rate equal to 100% of the
interest rate that would be used by the Pension Benefit Guaranty
Corporation (as of the date of the Change of Control) for purposes
of determining the present value of a lump sum distribution on
plan termination.
Notwithstanding the foregoing, the provisions of this
Paragraph 7.a. shall not apply with respect to a SERP Recipient
unless such SERP Recipient consents to the application of this
Paragraph 7.a. within thirty (30) days after the date the SERP
Recipient receives written notice of the terms of this Paragraph
7.a., as provided for by the following sentence. The Corporation
shall provide each SERP Recipient, a written notice of the terms
of this Paragraph 7.a. and the consent requirement contained
herein not later than five (5) days after the earliest of (x) the
occurrence of a Potential Change in Control, (y) the date that the
<PAGE>
<PAGE> 9
Corporation provides notice to its stockholders that a vote on a
transaction which, if consummated, would constitute a Change in
Control will be submitted to the Corporation's stockholders for
approval, or (z) the occurrence of a Change of Control.
b. For purposes of Paragraphs 7 and 10, a "Change in Control"
means:
(1) The acquisition or holding by any Person of beneficial
ownership (within the meaning of Section 13(d) under the Exchange
Act of shares of the Common Stock and/or the Class B Common Stock
of the Corporation representing 25% or more of either (i) the
total number of then outstanding shares of both Common Stock and
Class B Common Stock of the Corporation (the "Outstanding
Corporation Stock") or (ii) the combined voting power of the then
outstanding voting securities of the Corporation entitled to vote
generally in the election of directors (the "Outstanding
Corporation Voting Power"), provided that, at the time of such
acquisition or holding of beneficial ownership of any such shares,
the Hershey Trust does not beneficially own more than 50% of the
Outstanding Corporation Voting Power; and provided, further, that
any such acquisition or holding of beneficial ownership of shares
of either Common Stock or Class B Common Stock of the Corporation
by any of the following entities shall not by itself constitute
such a Change in Control hereunder: (i) the Hershey Trust;
(ii) any trust established by the Corporation, or by any
Subsidiary, for the benefit of the Corporation and/or its
employees or those of any Subsidiary; or (iii) any employee
benefit plan (or related trust) sponsored or maintained by the
Corporation or by any Subsidiary; or
(2) The approval by the stockholders of the Corporation of
any merger, reorganization, recapitalization, consolidation or
other form of business combination (a "Business Combination") if,
following consummation of such Business Combination, the Hershey
Trust does not beneficially own more than 50% of the total voting
power of all outstanding voting securities of the surviving entity
or entities; or
(3) The approval by the stockholders of the Corporation of
(i) any sale or other disposition of all or substantially all of
the assets of the Corporation, other than to a corporation as to
<PAGE>
<PAGE> 10
which the Hershey Trust beneficially owns more than 50% of the
total voting power of all outstanding voting securities, or (ii) a
liquidation or dissolution of the Corporation.
c. For purposes of Paragraphs 7 and 10, a "Potential Change
in Control" means:
(1) The Hershey Trust, or any person acting or purporting to
act on its (or their) behalf, makes a public announcement that it
(or they), or its (or their) Board of Trustees or Board of
Managers or any other responsible official, (i) intends to take,
(ii) is taking or (iii) has taken actions which would lead to a
Change in Control (a "public announcement" being defined for this
purpose as any statement quoted or otherwise reported in any
print, broadcast, wire service or other means of publication
available to the public in any locality in which any employee of
the Corporation is regularly located);
(2) The Hershey Trust enters into any contract, agreement or
other arrangement with any Person which would lead to a Change in
Control; or
(3) The Board approves a transaction described in
subsection (2) or (3) of the definition of Change in Control
contained in Paragraph 7.b."
d. For purposes of this Paragraph 7: (i) "Hershey Trust"
means either or both of (a) the Hershey Trust Company, a
Pennsylvania corporation, as Trustee for the Milton Hershey
School, or any successor to the Hershey Trust Company as such
trustee, and (b) the Milton Hershey School, a Pennsylvania
not-for-profit corporation; (ii) "Exchange Act" shall mean the
Securities Exchange Act of 1934 and the rules and regulations
promulgated thereunder; and (iii) "Person" shall have the meaning
given in Section 3(a)(9) of the Exchange Act, as modified and used
in Sections 13(d)(3) and 14(d) thereof.
<PAGE>
<PAGE> 11
8. Payment of Benefits. Nothing contained in the Plan and
no action taken pursuant to the provisions of the Plan shall
create or be construed to create a trust of any kind, or a
fiduciary relationship between the Corporation and the
Participant, his spouse or any other person. No person other than
the Corporation shall by virtue of the provisions of the Plan have
any interest in such assets. To the extent that any person
acquires a right to receive payments from the Corporation under
the Plan, such right shall be no greater than the right of any
unsecured general creditor of the Corporation. The right of the
Participant or any other person to the payment of benefits under
the Plan shall not be assigned, transferred, pledged or
encumbered; such payments and the right thereto are expressly
declared to be non-assignable and nontransferable. No payments
hereunder shall be subject to the claim of the creditors of the
Participant nor of any other person entitled to payments
hereunder. Any payments required to be made pursuant to the Plan
to a person who is under a legal disability may be made by the
Corporation to or for the benefit of such person in such of the
following ways as the Committee shall determine:
a. directly to such person.
b. to the legal representative of such person.
c. to a near relative of such person to be used for
the latter's benefit.
d. directly in payment of expenses of support, maintenance
or education of such person.
The Corporation shall not be required to see to the
application by any third party of any payments made pursuant to
the Plan.
9. Effective Date of Plan. This amended and restated Plan
shall be effective November 1, 1994 and Participants who become
eligible to retire under the Plan on or after that date shall be
entitled to the benefits provided hereunder.
10. Amendment, Suspension or Termination of the Plan.
The Board of Directors of the Corporation may, at any time,
suspend or terminate the Plan. The Board may also from time to
time, amend the Plan in such respects as it may deem advisable
<PAGE>
<PAGE> 12
in order that benefits provided hereunder may conform to any
change in law or in other respects which the Board deems to be
in the best interest of the Corporation. No such suspension,
termination or amendment of the Plan shall adversely affect any
right of any person who is a Participant at the time of such
suspension, termination or amendment or his beneficiary(ies),
estate or surviving spouse, as applicable, to receive benefits
under the Plan in accordance with its provisions in effect
immediately prior to such suspension, termination or amendment
without the consent of such Participant, beneficiary(ies),
estate or surviving spouse. Any benefits payable under the
terms of the Plan at the time of any suspension, termination or
amendment of the Plan shall remain in effect according to their
original terms, or such alternate terms as may be in the best
interests of both parties and agreed to by the Participant or
his beneficiaries, estate or surviving spouse, as applicable.
Notwithstanding the foregoing, (a) the Plan may not be
terminated or amended in any manner that is adverse to the
interests of a Participant or the surviving spouse of a
Participant without the consent of the Participant or surviving
spouse, as applicable, either: (i) after a Potential Change in
Control occurs and for one (1) year following the cessation of
the Potential Change in Control, or (ii) for a two year period
beginning on the date of a Change in Control (the "Coverage
Period"); and (b) no termination of this Plan or amendment
hereof in a manner adverse to the interests of any Participant
(without the consent of the Participant or surviving spouse)
shall be effective if such termination or amendment occurs (i)
at the request of a third party who has taken steps reasonably
calculated to effect a Change of Control, or (ii) in connection
with or in anticipation of a Change of Control. After the
Coverage Period, the Plan may not be amended or terminated in
any manner that would adversely affect the entitlement of a
Participant or his surviving spouse (without the consent of the
Participant or surviving spouse) to benefits that have accrued
hereunder. For purposes of the immediately preceding two
sentences of this Paragraph 10, "Participant" shall include any
employee of the Corporation participating in the performance
share unit portion of the KEIP (regardless of
<PAGE>
<PAGE> 13
whether any such employee meets the other eligibility requirements
of Paragraph 3) at the time (a) the Coverage Period commences and
thereafter or (b) his employment is terminated or the Plan is amended
(i) at the request of a third party who has taken steps reasonably calculated
to effect a Change of Control, or (ii) in connection with or in anticipation
of a Change of Control.
IN WITNESS WHEREOF, Hershey Foods Corporation has caused
this Hershey Foods Corporation Amended and Restated
Supplemental Executive Retirement Plan to be executed this 1st
day of November.
HERSHEY FOODS CORPORATION
By_____________________________
Chief Executive Officer
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF REGISTRANT
The following is a listing of Subsidiaries of the Corporation,
their jurisdictions of incorporation, and the name under which they
do business. Each is wholly owned. Certain subsidiaries are not
listed since, considered in the aggregate as a single subsidiary,
they would not constitute a significant subsidiary as of December
31, 1994.
Jurisdiction of
Name of Subsidiary Incorporation
Hershey Canada Inc. Canada
Hershey Holding Corporation Delaware
Homestead, Inc. Delaware
Sperlari S.r.l. Italy
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM HERSHEY
FOODS CORPORATION'S CONSOLIDATED CONDENSED BALANCE SHEET AS OF DECEMBER 31,1994
AND CONSOLIDATED STATEMENT OF INCOME FOR THE TWELVE MONTHS ENDED DECEMBER 31,
1994 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 26,738
<SECURITIES> 0
<RECEIVABLES> 331,670
<ALLOWANCES> 0
<INVENTORY> 445,702
<CURRENT-ASSETS> 948,666
<PP&E> 2,123,529
<DEPRECIATION> 655,132
<TOTAL-ASSETS> 2,890,981
<CURRENT-LIABILITIES> 796,221
<BONDS> 157,227
<COMMON> 89,922
0
0
<OTHER-SE> 1,351,178
<TOTAL-LIABILITY-AND-EQUITY> 2,890,981
<SALES> 3,606,271
<TOTAL-REVENUES> 3,606,271
<CGS> 2,097,556
<TOTAL-COSTS> 3,131,671
<OTHER-EXPENSES> (106,105)<F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 35,357
<INCOME-PRETAX> 333,138
<INCOME-TAX> 148,919
<INCOME-CONTINUING> 184,219
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 184,219
<EPS-PRIMARY> 2.12
<EPS-DILUTED> 0
<FN>
<F1> RELATES TO A RESTRUCTURING CHARGE RECORDED IN THE FOURTH QUARTER.
</FN>
</TABLE>
