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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, 1995
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 $3,708,702,360, as of March 1,1996.
Class B Common Stock, one dollar par value $6,622,769 as of March 1,1996.
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 March 1, 1996.
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 62,093,226 shares, as of March 1,1996.
Class B Common Stock, one dollar par value 15,241,454 shares, as of
March 1, 1996.
DOCUMENTS INCORPORATED BY REFERENCE
The Corporation's Consolidated Financial Statements and Management's
Discussion and Analysis for the year ended December 31, 1995 are
included in the Appendix to the Corporation's Proxy Statement for the
Corporation's 1996 Annual Meeting of Stockholders and are incorporated
by reference into Part II and are filed as Exhibit 13 hereto.
Portions of the Proxy Statement are incorporated by reference herein
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 and
non-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
non-chocolate 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 non-chocolate confectionery products are
greater than those on pasta and other food products.
In North America, the Corporation manufactures chocolate and non-
chocolate 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 non-chocolate
confectionery products in the United States are: HERSHEY'S COOKIES 'N'
CREME chocolate bars, 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, 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, OH HENRY! candy bars, POT OF GOLD
boxed chocolates, REESE PEANUT BUTTER CUPS candy, and TWIZZLERS candy.
The Corporation also manufactures, imports, markets, sells and
distributes chocolate products in Mexico under the HERSHEY'S brand name.
The Corporation manufactures and markets a line of grocery products in
the baking, beverage, peanut butter and toppings categories. Principal
products in the United States include HERSHEY'S baking chips, HERSHEY'S
drink boxes, HERSHEY'S chocolate milk mix, HERSHEY'S cocoa, HERSHEY'S
CHOCOLATE SHOPPE toppings, HERSHEY'S HOT COCOA COLLECTION 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
certain independent dairies throughout the United States, using a
chocolate milk mix manufactured by the Corporation.
The Corporation's chocolate and non-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, Canada and Mexico. The Corporation
believes its chocolate and non-chocolate confectionery products are sold
in over 2 million retail outlets in North America. In 1995, sales to
Wal-Mart Stores, Inc. and subsidiaries amounted to approximately 11% of
total net sales.
The Corporation manufactures and markets high-quality assorted
pralines and seasonal chocolate products in Germany under the GUBOR
brand name which are sold directly to retailers. In Italy, the
Corporation manufactures and markets
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various confectionery and grocery products under the SPERLARI and
several other brand names. In Japan, the Corporation imports and
markets selected HERSHEY'S chocolate and non-chocolate confectionery products.
The Corporation also exports chocolate and non-chocolate confectionery products
to over 60 countries worldwide.
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.
In June 1995, the Corporation completed the sale of the outstanding
stock of Overspecht B.V. (OZF Jamin), which manufactures and distributes
chocolate and confectionery products, cookies, biscuits and ice cream in
Western Europe. During December 1995, the Corporation completed the
acquisition of Henry Heide, Incorporated, a privately held company
located in New Jersey which manufactures and markets a variety of non-
chocolate confectionery products including JUJYFRUITS candies and
WUNDERBEANS jellybeans. Also during December 1995, the Corporation
entered into definitive agreements to sell the assets of Hershey Canada,
Inc.'s BEECH-NUT cough drop, BREATH SAVERS and LIFE SAVERS hard candy
and PLANTERS nut businesses. These divestitures were completed in
January, 1996.
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 and non-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
efficiencies in 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 products to accommodate changes in manufacturing costs, the
competitive environment and profit objectives, while at the same time
maintaining consumer value. As a result of higher raw material and
packaging costs and the cumulative affect of inflation on other costs
since the last standard candy bar price increase in 1991, the
Corporation, in December 1995, implemented a wholesale price increase of
approximately 11% on its standard and king-size candy bars sold in the
United States.
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)
1991 1992 1993 1994 1995
Annual Average. . . 52.8 47.6 47.3 59.1 61.2
High. . . . . . . . 60.0 56.2 56.7 66.1 64.1
Low . . . . . . . . 45.6 41.3 41.8 51.3 58.3
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 non-chocolate 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 $.32 per pound for the past ten
years.
Other raw materials purchased in substantial quantities for domestic
confectionery 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. This
legislation has an impact on the prices of sugar, peanuts, and milk
because it sets price support levels for these and other commodities.
This law is currently being reviewed by Congress and the nature of any
new legislation is uncertain at this time.
During the first quarter of 1995, domestic milk prices averaged well
below the prior year's levels, as a result of improved milk production
in Minnesota and Wisconsin. The extreme heat throughout the country
during the summer of 1995 negatively affected milk production and
production of dairy feeds. As a result, prices rose during the fourth
quarter.
Peanut prices were stable throughout the first three quarters of 1995
due to stagnant demand and a favorable 1994 crop. However, prices
increased slightly during the fourth quarter of the year due to a below
average 1995 crop.
Almond prices rose significantly in early 1995 as California
experienced adverse weather during the growing season. As prospects for
a favorable new crop diminished, prices rose again in late summer to an
unprecedented level and remained near this level for the balance of the year.
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 1995, the
market price for semolina remained near historic highs. The
exceptionally high cost resulted from short supplies of durum wheat
combined with U.S. Government tariffs on imports of Canadian wheat. The
tariffs expired as scheduled in September 1995 but prices remained high
due to a continued worldwide shortage of durum wheat.
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, sugar and corn sweeteners, 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, sugar and corn
sweetener 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
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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, sugar and corn
sweeteners, are directly linked to the overall planning and management
of the Corporation's business, since the cost of raw materials accounts
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 affiliated companies of Cadbury Schweppes p.l.c. 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 1995. The Corporation also has an agreement
with Societe des Produits Nestle SA, which licenses the Corporation to
manufacture and distribute in the United States 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 1995,
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 owns various registered and unregistered trademarks
and service marks, and has rights under licenses to use various
trademarks 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.
Research and Development
The Corporation engages in a variety of 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.
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Employees
As of December 31, 1995, the Corporation had approximately 13,300
full-time and 1,500 part-time employees, of whom approximately 6,000
were covered by collective bargaining agreements. The Corporation
considers its employee relations to be good.
Financial Information by Geographic Area
Information concerning the Corporation's geographic segments is
contained in Footnote 17 of the Corporation's Consolidated Financial
Statements and Management's Discussion and Analysis included in the
Appendix to the Proxy Statement for its 1996 Annual Meeting of
Stockholders (the "Proxy Statement"), which information is incorporated
herein by reference and filed as Exhibit 13 hereto.
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 and grocery products
(3 principal plants)
Lancaster, Pennsylvania - confectionery products
Oakdale, California - confectionery and grocery products
Stuarts Draft, Virginia - confectionery products
Winchester, Virginia - pasta products
CANADA
Smiths Falls, Ontario - confectionery products
In addition to the locations indicated above, the Corporation owns or
leases several other properties used for manufacturing chocolate and
non-chocolate confectionery, grocery and pasta products and for 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 plants are located in Hershey, Pennsylvania. Many additions and
improvements have been made to these facilities over the years and the
plants' 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 A-7
and A-8 of the Corporation's Consolidated Financial Statements and
Management's Discussion and Analysis included in the Appendix to the
Proxy Statement which is deemed to be part of the Annual Report to
Stockholders and which information is incorporated herein by reference
and filed as Exhibit 13 hereto.
Item 6. SELECTED FINANCIAL DATA
The following information, for the five years ended December 31,
1995, found in the section "Eleven-Year Consolidated Financial Summary"
on pages A-29 through A-31 of the Corporation's Consolidated Financial
Statements and Management's Discussion and Analysis included in the
Proxy Statement, is incorporated herein by reference and filed
as Exhibit 13 hereto: Net Sales; Income from Continuing Operations
Before Accounting Changes; Income Per Share from Continuing Operations
Before Accounting Changes (excluding Notes g, h, i and j); 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 A-
1 through A-8 of the Corporation's Consolidated Financial Statements and
Management's Discussion and Analysis included in the Appendix to the
Proxy Statement, is incorporated herein by reference and filed as
Exhibit 13 hereto.
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 Consolidated Financial Statements and Management's
Discussion and Analysis included in the Appendix to the Proxy Statement,
and such financial statements, along with the report of the independent
public accountants thereon, are incorporated herein by reference and
filed as Exhibit 13 hereto.
1. Consolidated Statements of Income for the years ended December
31, 1995, 1994 and 1993.(Page A-9)
2. Consolidated Balance Sheets as of December 31, 1995 and 1994.
(Page A-10)
3. Consolidated Statements of Cash Flows for the years ended
December 31, 1995, 1994 and 1993. (Page A-11)
4. Consolidated Statements of Stockholders' Equity for the years
ended December 31, 1995, 1994 and 1993. (Page A-12)
5. Notes to Consolidated Financial Statements (Pages A-13 through
A-26), including "Quarterly Data(Unaudited)." (Page A-26)
6. Report of Independent Public Accountants. (Page A-28)
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
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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 Proxy Statement.
This information is incorporated herein by reference.
Executive Officers of the Corporation as of March 1, 1996
Name Age Positions Held During the Last Five Years
CORPORATE
K. L. Wolfe. . . 57 Chairman of the Board and Chief Executive
Officer (1993); President and Chief Operating
Officer (1985)
J. P. Viviano. . 57 President and Chief Operating Officer (1993);
President, Hershey Chocolate U.S.A., now
Hershey Chocolate North America, a division
of Hershey Foods Corporation (1985)
W. F. Christ . . 55 Senior Vice President and Chief Financial
Officer (1994); President, Hershey
International, a division of Hershey Foods
Corporation (1988)
R. E. Bentz. . . 48 Vice President, Information Technology
Integration (1995); Vice President, Finance
and Administration, Hershey Chocolate North
America (1995); Vice President, Finance and
Administration, Hershey Chocolate U.S.A.
(1989)
C. L. Duncan . . 56 Vice President, Research and Development
(1981)
T. C. Fitzgerald . 56 Vice President and Treasurer (1990)
S. A. Lambly . . 55 Vice President, Human Resources (1989)
R. M. Reese . . 46 Vice President, General Counsel and Secretary
(1995); Vice President and General Counsel
(1992); Assistant General Counsel (1987)
D. W. Tacka. . . 42 Corporate Controller and Chief Accounting
Officer (1995); Vice President, Finance and
Administration, Hershey Pasta Group, a
division of Hershey Foods Corporation (1989)
B. L. Zoumas . . 53 Vice President, Science and Technology
(1992); Vice President, Technical, Hershey
Chocolate U.S.A. (1990)
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Executive Officers of the Corporation (continued)
Name Age Positions Held During The Last Five Years
DIVISION
R. Brace . . . 52 Vice President, Manufacturing, Hershey
Chocolate North America (1995); Vice
President, Manufacturing, Hershey Chocolate
U.S.A. (1987)
J. F. Carr . . 51 President, Hershey International (1994); Vice
President, Marketing, Hershey Chocolate
U.S.A. (1984)
F. Cerminara . . 47 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 . 41 General Manager, Hershey Grocery, a division
of Hershey Foods Corporation (1994);
Director, Marketing, Hershey Chocolate U.S.A.
(1988)
M. H. Holmes . . 51 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 . 49 Vice President, Sales, Hershey Chocolate
U.S.A. (1989)
R. W. Meyers . . 52 President and General Manager, Hershey Canada
Inc., a subsidiary of Hershey Foods
Corporation (1995); President, Hershey Canada
Inc. (1990)
M. F. Pasquale . 48 President, Hershey Chocolate North America
(1995); President, Hershey Chocolate U.S.A.
(1994); Senior Vice President and Chief
Financial Officer (1988)
C. M. Skinner. . 62 President, Hershey Pasta Group (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.
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(a) of the Securities Exchange Act of 1934" of the Proxy Statement.
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 "1995
Executive Compensation" and "Compensation of Directors" in the Proxy
Statement. This information is incorporated herein by reference.
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 Proxy Statement. This information is incorporated
herein by reference.
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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 Proxy Statement. 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 Consolidated Financial Statements
and Management's Discussion and Analysis included in the Appendix to
the Proxy Statement and filed as Exhibit 13 hereto.
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,
1995, 1994 and 1993 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 3 to the
Corporation's Quarterly Report on Form 10-Q for the quarter ended
April 3, 1988. The By-laws, as amended on October 3, 1995, are
incorporated by reference from Exhibit 3 to the Corporation's
Report on Form 10-Q for the quarter ended October 1, 1995.
(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:
a. 8.45% to 9.92% Medium-Term Notes due 1995-1998
b. 6.7% Notes due 2005
c. 8.8% Debentures due 2021
d. Other Obligations
The Corporation will furnish copies of the above debt instruments
to the Commission upon request.
<PAGE>
<PAGE> Page 10
(10) Material contracts
a. Kit Kat and Rolo License Agreement (the "License Agreement")
between Hershey Foods Corporation and Rowntree Mackintosh
Confectionery Limited is incorporated by reference from
Exhibit 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 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 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 CBI Holdings, Inc.) dated August 25,
1988, is incorporated by reference from Exhibit 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 CBI
Holdings, Inc.) and Cadbury Limited dated August 25, 1988, is
incorporated by reference from Exhibit 2(a) to the
Corporation's Current Report on Form 8-K dated September 8,
1988.
d. 364-Day Credit Agreement dated as of December 15, 1995 among
Hershey Foods Corporation, the banks, financial institutions
and other institutional lenders listed on the signature pages
thereof, and Citibank, N.A. as administrative agent bank and
Citicorp Securities, Inc. and BA Securities, Inc. as co-
syndication agents, is incorporated by reference from Exhibit
10.1 to the Corporation's Current Report on Form 8-K dated
January 29, 1996.
e. Five-Year Credit Agreement dated as of December 15, 1995
among Hershey Foods Corporation, the banks, financial
institutions and other institutional lenders listed on the
signature pages thereof, and Citibank, N.A. as administrative
agent bank and Citicorp Securities, Inc. and BA Securities,
Inc. as co-syndication agents, is incorporated by reference
from Exhibit 10.2 to the Corporation's Current Report on Form
8-K dated January 29, 1996.
Executive Compensation Plans
f. The 1987 Key Employee Incentive Plan, as amended, is
incorporated by reference from Exhibit 19(i) to the
Corporation's Annual Report on Form 10-K for the fiscal year
ended December 31, 1994.
g. Hershey Foods Corporation's Restated Supplemental Executive
Retirement Plan is incorporated by reference from Exhibit
19(ii) to the Corporation's Annual Report on Form 10-K for
the fiscal year ended December 31, 1994.
h. Hershey Foods Corporation's Non-Management Director
Retirement Plan is incorporated by reference from Exhibit 19
to the Corporation's Quarterly Report on Form 10-Q for the
quarter ended March 29, 1992.
i. Hershey Foods Corporation's Deferral Plan for Non-Management
Directors is incorporated by reference from Exhibit 10 to
the Corporation's Annual Report on Form 10-K for the fiscal
year ended December 31, 1992.
j. A form of the Benefit Protection Agreements entered into
between the Corporation and certain of its executive officers
is incorporated by reference from Exhibit 10 to the
Corporation's Annual Report on Form 10-K for the fiscal year
ended December 31, 1994.
k. Hershey Foods Corporation's Deferred Compensation Plan is
filed as Exhibit 10 hereto.
<PAGE>
<PAGE> Page 11
(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, 1995, 1994, 1993, 1992 and 1991 is filed as
Exhibit 12 hereto.
(13) Annual report to security holders
The Corporation's Consolidated Financial Statements and
Management's Discussion and Analysis is included in the Appendix
to the Proxy Statement and is filed as Exhibit 13 hereto.
(21) Subsidiaries of the Registrant
A list setting forth subsidiaries of the Corporation is filed
as Exhibit 21 hereto.
Item 14(b): Reports on Form 8-K
A report on Form 8-K was filed on December 4, 1995, reporting that
Hershey Chocolate U.S.A., a division of Hershey Foods Corporation,
increased the wholesale price of its standard and king-size bar
lines by approximately 11% effective December 4, 1995.
<PAGE>
<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 13, 1996 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
(K. L. Wolfe) and Director March 13, 1996
W. F. CHRIST Chief Financial Officer Mrch 13, 1996
(W. F. Christ)
D. W. TACKA Chief Accounting Officer March 13, 1996
(D.W. Tacka)
J. P. VIVIANO Director March 13, 1996
(J. P. Viviano)
W. H. ALEXANDER Director March 13, 1996
(W. H. Alexander)
H. O. BEAVER, JR. Director March 13, 1996
(H. O. Beaver, Jr.)
R. H. CAMPBELL Director March 13, 1996
(R. H. Campbell)
T. C. GRAHAM Director March 13, 1996
(T. C. Graham)
B. GUITON HILL Director March 13, 1996
(B. Guiton Hill)
<PAGE>
<PAGE> Page 13
Signature Title Date
J. C. JAMISON Director March 13, 1996
(J. C. Jamison)
S. C. MOBLEY Director March 13, 1996
(S. C. Mobley)
F. I. NEFF Director March 13, 1996
(F. I. Neff)
J. M. PIETRUSKI Director March 13, 1996
(J. M. Pietruski)
V. A. SARNI Director March 13, 1996
(V. A. Sarni)
<PAGE>
<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 Proxy Statement for its 1996 Annual Meeting of
Stockholders incorporated by reference in this Form 10-K, and have
issued our report thereon dated January 25, 1996. 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, New York
January 25, 1996
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our reports dated January 25, 1996, included or
incorporated by reference in this Form 10-K for the year ended
December 31, 1995, into the Corporation's previously filed
Registration Statements on Forms S-8 or S-3, (File No. 33-45431, File
No. 33-45556 and File No. 33-51089).
ARTHUR ANDERSEN LLP
New York, New York
March 13, 1996
<PAGE>
<PAGE> Page 15
<TABLE>
Schedule II
HERSHEY FOODS CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended December 31, 1995, 1994 and 1993
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, 1995:
Reserves deducted
in the balance sheet
from the assets to
which they apply:
Accounts Receivable -Trade. . .$13,972 $1,318 $(432) $(57) $14,801
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
</TABLE>
(a) Includes recoveries of amounts previously written off.
<PAGE>
<PAGE> Page 16
HERSHEY FOODS CORPORATION ANNUAL REPORT ON FORM 10-K
Index to Exhibits
Exhibit No.
10 -- Deferred Compensation Plan
12 -- Computation of ratio of earnings to fixed charges statement
13 -- Consolidated Financial Statements and Management's Discussion
and Analysis
21 -- Subsidiaries of the Registrant
27 -- Financial Data Schedule for the period ended December 31, 1995
(Required for electronic filing only).
<PAGE>
Hershey Foods Corporation
Deferred Compensation Plan
This Deferred Compensation Plan (the "Plan") allows
participants in the Annual Incentive Program (the "AIP") of Hershey
Foods Corporation's Key Employee Incentive Plan to defer receipt of
all or part of their awards under the AIP. Participants in the
Long Term Incentive Program ("LTIP") of the Key Employee Incentive
Plan may also defer under this plan the cash equivalent of the
dividends received on deferred LTIP awards provided certain minimum
stockholding requirements have been satisfied. The Plan is
intended to benefit those key executives of Hershey Foods
Corporation (and subsidiaries as specified in the AIP and LTIP) who
participate in the AIP or LTIP, to secure their goodwill, loyalty
and achievement, and to help attract and retain high quality
executives.
AIP awards for 1995 and beyond may be deferred under
this Plan. Also, Participants who have previously deferred AIP
awards under the deferral arrangement in effect for awards prior to
1995 may elect to credit their deferral accounts under the prior
deferral arrangement to their Accounts under this Plan as
hereinafter described.
Dividends earned on deferred LTIP awards may also be
deferred under the Plan, but only if the Participant has satisfied
the employee minimum stockholding requirements established by the
Compensation and Executive Organization Committee of the Board of
Directors. Dividends previously earned, as well as future
dividends earned on deferred LTIP awards are eligible for deferral
under the Plan.
Article I
Definitions
The following definitions apply to this Plan:
1.1 Account. "Account" means the Account maintained by the
Company pursuant to Article II with respect to each Participant.
1.2 AIP. "AIP" means the Annual Incentive Program of Hershey
Foods Corporation's Key Employee Incentive Plan.
1.3 Board. "Board" or "Board of Directors" means the Board of
Directors of Hershey Foods Corporation.
1.4 Committee or Compensation Committee. "Committee" or
"Compensation Committee" means the Compensation and Executive
Organization Committee of the Board.
1.5 Company. "Company" means Hershey Foods Corporation, a
Delaware corporation.
1.6 Deferral Election. "Deferral Election" means a
Participant's election to defer all or part of the Participant's
AIP award or the dividends earned on the Participant's deferred
LTIP award as described in Article II.
1.7 Determination Date. "Determination Date" means the last
day of each calendar quarter.
1.8 Disability. "Disability" means a condition or circumstance
entitling a Participant to be classified as "disabled" pursuant to
the Company's Long Term Disability Plan.
1.9 Investment Options. "Investment Options" means the
following investment options which are to be used as earnings
indices as described in Section 2.3:
1. Hershey Fixed Income Fund
2. IDS Cash Management Fund
3. American Express Trust Equity Index Fund I
<PAGE>
The Investment Options are chosen by the Plan Administrator and are
subject to change from time to time as the Plan Administrator, in
its discretion, deems necessary or appropriate. No provision of
this Plan shall be construed as giving any Participant an interest
in any of these Investment Options nor shall any provision require
that the Company make any investment in any such funds.
1.10 LTIP. "LTIP" means the Long Term Incentive Program
of Hershey Foods Corporation's Key Employee Incentive Plan.
1.11 Participant. "Participant" means an employee of the
Company who is eligible to participate in the AIP or LTIP and who
elects to participate in this Plan by filing a Deferral Election as
provided in Article II.
1.12 Plan. "Plan" means this Hershey Foods Corporation
Deferred Compensation Plan as set forth herein and as amended from
time to time.
1.13 Plan Administrator. "Plan Administrator" means the
Director, Executive Compensation and Employee Benefits, for Hershey
Foods Corporation.
1.14 Plan Year. "Plan Year" means the calendar year.
1.15 Retirement. "Retirement" means termination of
employment with a Company after becoming eligible for retirement
under the Hershey Foods Corporation Retirement Plan.
Article II
Deferral Elections: Accounts
2.1. Election to Defer.
a. AIP Awards. A Participant may elect to defer
receipt of all or a portion of his or her anticipated bonus under
the AIP. A Participant's election must be made no later than
November 1st of the year in which the Participant renders the
services which result in the bonus award. The election must be
made on a form supplied by the Plan Administrator. The election to
defer a bonus is irrevocable except as specifically provided
otherwise in this Plan.
b. LTIP Awards. A Participant may elect under this
Plan to defer receipt of all or a portion of the dividends to be
earned on deferred LTIP awards. A Participant's election must be
made at least sixty (60) days prior to the date the dividend will
be paid. The election must be made on a form supplied by the Plan
Administrator. The election to defer receipt of an LTIP dividend
is irrevocable except as specifically provided otherwise in this
Plan.
2.2. Accounts.
a. Establishment of Accounts. Any amounts deferred by
a Participant will not be funded or set aside for future payment by
the Company. Instead, an Account will be noted for the Participant
on the Company's books. A Participant's Account will be credited
with amounts deferred and with investment credits as provided in
subparagraph c. below. A separate Account will be established for
each Deferral Election.
b. Participants as Unsecured Creditors. A
Participant's entitlement to receive the amount reflected by his or
her Account will be based solely on an unconditional promise to pay
by the Company and is not assignable; however, except as provided
in Section 7.5 below, the Participant at all times will be fully
vested in the Account.
c. Investment Credits to Accounts. Subject to such
limitations as may from time to time be required by law or imposed
by the Plan Administrator, and subject to such operating rules and
procedures as may be imposed from time to time by the Plan
Administrator, each Participant may express to the Plan
<PAGE>
Administrator a preference as to how the Participant's Account
should be constructively invested among the Investment Options.
Such preference shall designate the percentage of the Participant's
Accounts which is requested to be constructively invested in each
Investment Option.
(1) Any initial or subsequent expression of
investment preference shall be in writing, on a form supplied by
and filed with the Plan Administrator, and shall be subject to such
rules and procedures as the Plan Administrator may promulgate from
time to time. Participants may change their investment preferences
effective as of the beginning of each Plan Year.
(2) All investment preferences shall be advisory
only and shall not bind the Company or the Plan Administrator. The
Company shall not be obligated to invest any funds in connection
with this Plan. If, however, the Company chooses to invest funds
to provide for its liabilities under this Plan, the Plan
Administrator shall have complete discretion as to investments.
(3) Whether or not a Participant's investment
preferences are followed, the Participant's Account will be
credited with earnings or losses as follows. As of each
Determination Date, the net earnings or losses (as defined below)
of each Investment Option since the preceding Determination Date
shall be allocated among all Accounts in accordance with the
preferences indicated by each Participant as though the Accounts
had been invested in the Investment Option in accordance with each
Participant's indicated preference.
(4) If the Plan Administrator receives an initial
or revised investment preference which it deems to be incomplete,
unclear or improper, the Participant's investment preference then
in effect shall remain in effect (or, in the case of a deficiency
in an initial investment preference, the Participant shall be
deemed to have filed no investment preference) until the beginning
of the next Plan Year, unless the Plan Administrator provides for,
and permits the application of, corrective action prior thereto.
If a Participant fails to file an effective investment preference,
the Participant's Account will be constructively invested in the
IDS Federal Income Fund.
(5) If the Plan Administrator determines that the
constructive value of an Account as of any date on which
distributions are to be made differs materially from the
constructive value of the Account on the prior Determination Date
upon which the distribution is to be based, the Plan Administrator,
in its discretion, shall have the right to designate any date in
the interim as a Determination Date for the purpose of
constructively revaluing the Account so that the account from which
the distribution is being made will, prior to the distribution,
reflect its share of such material difference in value. Similarly,
the Plan Administrator may adopt a policy of providing for regular
interim valuations without regard to the materiality of changes in
the value of the Accounts.
d. Statement of Accounts. Within a reasonable time
after the end of each calendar year, the Plan Administrator shall
submit to each Participant a statement of the balance in his
Accounts.
2.3 Credit of Previous AIP Deferrals to Accounts.
Participants who have previously deferred AIP awards under the
deferral arrangements in effect for awards prior to 1995 may elect
as of any beginning of any Plan Year to credit any portion of their
deferral accounts under the prior arrangement to their Accounts
under this Plan. Credits shall be made to this Plan pursuant to
this Section on January 1 of the year subsequent to any such
election being made. Amounts so credited shall become part of a
Participant's Account and shall be subject to the terms and
conditions of this Plan, except that prior elections as to payment
of deferred amounts shall remain in effect. Once amounts are
credited to a Participant's Account pursuant to this Section 2.3,
they may not thereafter be returned to the Participant's deferral
accounts under the prior deferral arrangement.
2.4 Credit of Previous Dividends Paid on LTIP Deferrals to
Accounts. Participants who have previously received dividends on
deferred LTIP awards under the deferral arrangements in effect for
awards prior to 1995 may elect as of the beginning of any Plan Year
to credit any portion of their previously deferred dividends under
the prior arrangement to their Accounts under this Plan.
Notwithstanding the above, previously deferred LTIP dividends are
not eligible to be deferred pursuant to the terms of the Plan
unless the Participant has satisfied the employee minimum
stockholding requirements established by the Committee. Credits
shall be made to this Plan pursuant to this Section on the January
1 of the year subsequent to any such election being made. Amounts
so credited shall become part of a Participant's Account and shall
be subject to the terms and conditions of this Plan,
<PAGE>
except that prior elections as to payment of deferred amounts shall
remain in effect. Once amounts are credited to a Participant's Account
pursuant to this Section 2.4, they may not thereafter be returned
to the Participant's deferral accounts under the prior deferral
arrangement.
Article III
Distribution of Deferrals
3.1 Initial Election of Distribution Options in Deferral
Election. A Participant must specify in his or her Deferral
Election when the Participant's Account will be distributed.
Distribution may be made or begin in any year or years in the
future, but distributions must begin not later than the calendar
year following the calendar year in which the Participant attains
age 70. The Participant may elect to receive amounts deferred in
a lump sum or in up to ten approximately equal annual installments.
A Participant may specify different distribution dates and forms of
payment under each of his or her Deferral Elections.
3.2 Changes in Distribution Options.
a. A Participant is entitled to one future opportunity
to further lengthen (not shorten) the deferral period provided in
a Deferral Election and to make one future change with regard to
lengthening (not shortening) the payment schedule provided in that
Election up to a maximum payment schedule of ten years.
b. Any change in the deferral period or the payment
schedule must be submitted to the Plan Administrator in writing, on
a form provided by the Plan Administrator, at least twelve months
before the date payments were originally scheduled to begin. Any
change in the deferral period shall not require payments to begin
after the calendar year following the Participant's attainment of
age 70.
3.3 Payment of Deferred Amounts.
a. Upon the date elected by the Participant, the
Company shall begin to pay an amount equal to the total amount then
credited to the Participant's Account. Such amount is to be paid
either in one lump sum or in approximately equal annual
installments over a period of years as elected by the Participant,
which period shall be not more than ten years. Each annual
installment shall include investment credits on the remaining
balance during the previous year until the Account shall have been
paid out in full. A Participant may continue to express investment
preferences as provided in paragraph c of Section 2.2 during the
period that the Account is being distributed.
b. If the Participant should die before payment in full
of the amount standing to the Participant's credit in the Account,
the unpaid balance may be paid in one lump sum or in installments
to the Participant's beneficiary in accordance with whichever
election has been made by the Participant. If the Participant
should die before the beginning date of the deferral payment and
did not indicate a specific method of distribution, then the
beneficiary may petition the Plan Administrator regarding the
method of distribution. In the absence of a designated
beneficiary, the balance of the Account will be paid in a lump sum
to the estate of the Participant as soon as possible.
c. If the Participant's employment is terminated for
any reason other than Retirement, death or Disability before the
elected payment date, then the Company, acting through the Plan
Administrator, at its discretion and at any time thereafter may:
(1) Immediately pay over any amounts credited to
the Participant's Account to the Participant.
(2) Deposit any amounts credited to the
Participant's Account with a third party fiduciary in trust for the
Company's benefit who will manage and pay over such amounts to the
Participant in accordance with the terms of this Plan, with
administrative costs in such event being charged to the
Participant's Account.
<PAGE>
(3) Continue to itself maintain and pay over
amounts deferred to the Participant in accordance with the terms of
this Plan and the Participant's election pursuant thereto.
d. If both the Participant and his beneficiary shall
die after payments to the Participant begin and before all payments
are made from the Participant's Account, the remaining value of the
Account shall be determined as of the date of death of the
beneficiary or Participant, whichever is later, and shall be paid
as promptly as possible in one lump sum to the estate of such
beneficiary or as specified in the beneficiary's last will and
testament, as the case may be.
e. A Participant may designate or change his or her
beneficiary (without the consent of any prior beneficiary) on a
form provided by the Plan Administrator and delivered to the Plan
Administrator before the Participant's death.
f. Installment payments shall commence on or before the
fifteenth day of the year selected by the Participant (or on or
before the fifteenth day of the year after the year in which the
Participant retires, if the Participant has elected to defer until
after Retirement).
3.4 Hardship Distributions. The Compensation Committee may,
in its discretion, accelerate payments to a Participant in an
amount up to the bonus previously deferred, together with
investment credits to date, in the event of demonstrated severe
financial hardship. Any such payments made will be limited to the
amount needed to meet the demonstrated financial need. A
Participant seeking a financial hardship withdrawal from his or her
Account must request a hearing with the Plan Administrator, who
will gather facts and render a report to the Compensation Committee
for a decision.
3.5 Other Withdrawals: Forfeiture Penalty. A Participant
may, by written request on a form provided by the Plan
Administrator, withdraw all or any portion of his Account as of any
Determination Date, provided that the Participant shall forfeit 15%
of the amount withdrawn as a penalty.
3.6. Withholding. Any payments made pursuant to this
Article III shall be subject to appropriate federal, state or local
income tax withholdings.
Article IV
Claims Procedure
4.1 The following provisions are incorporated in the Plan in
accordance with the requirements of the Employment Retirement
Income Security Act of 1974:
a. The following claims procedure is hereby
established:
(1) A Participant or beneficiary shall make a claim
for the benefits provided by delivering a written request to the
Plan Administrator. Upon receipt of a claim, the Plan
Administrator shall determine whether to grant the claim, deny it,
or grant it in part.
(2) If a claim is wholly or partially denied,
notice of the decision, meeting the requirements of paragraph (3)
following shall be furnished to the claimant within a reasonable
period of time after receipt of a claim by the Plan Administrator.
(3) The Plan Administrator shall provide to every
claimant who is denied a claim for benefits, written notice setting
forth in a manner calculated to be understood by the claimant, the
specific reason or reasons for the denial; specific reference to
pertinent Plan provisions on which denial is based; a description
of any additional material or information necessary for the
claimant to perfect the claim and an explanation of why such
material or information is necessary; and an explanation of the
Plan's claim review procedure as set forth herein.
<PAGE>
(4) The purpose of the review procedures set forth
herein is to provide a procedure by which a claimant under the Plan
may have a reasonable opportunity to appeal a denial of a claim to
the named fiduciary for a full and fair review. To accomplish that
purpose, the claimant or his duly authorized representative may
request a review upon written application to the Committee may
review pertinent Plan documents; and may submit issues and comments
in writing. A claimant (or his duly authorized representative)
shall request a review by filing a written application for review
with the Committee at any time within sixty (60) days after receipt
by the claimant of written notice of denial of this claim.
(5) The decision on review of a denied claim shall
be made as follows. The decision on review shall be made by the
Committee, which may in its discretion hold a hearing on the denied
claim. The Committee shall make a decision promptly, and not later
than sixty (60) days after receipt of the request for review,
unless special circumstances (such as the need to hold a hearing)
require an extension of time of reprocessing, in which case a
decision shall be rendered as soon as possible, but not later than
one hundred twenty (120) days after receipt of the request for
review. The decision on review shall be in writing and shall
include specific reasons for the decisions, written in the manner
calculated to be understood by the claimant, and specific
references to the pertinent Plan revisions on which the decision is
based. The Committee shall have full discretion to decide the
claim and its decision on review shall be final and binding on all
parties.
b. For purposes of implementing the claims procedure
(but not for any other purposes), the Committee is hereby
designated as a named fiduciary of this Plan.
Article V
Plan Administrator
5.1 Plan Administrator Duties. The Plan Administrator shall
administer this Plan and shall be a named fiduciary of the Plan for
that purpose. The Plan Administrator may be a Participant. A Plan
Administrator who is a Participant may not vote on matters
affecting his or her personal benefit under this Plan, but any such
individual shall otherwise be fully entitled to act in matters
arising out of or affecting this Plan notwithstanding his or her
participation herein. The Plan Administrator shall have the
authority to make, amend, interpret, and enforce all appropriate
rules and regulations for the administration of this Plan and
decide or resolve any and all questions, including interpretations
of this Plan, as may arise in connection with the Plan.
5.2 Agents. In the administration of this Plan, the Plan
Administrator may, from time to time, employ agents and delegate to
them or to others (including employees of the Company) such
administrative duties as it sees fit. The Plan Administrator may
from time to time consult with counsel, who may be counsel to the
Company.
5.3 Binding Effect of Decisions. In carrying out its duties
herein, the Plan Administrator (or its designee) shall have full
discretion to exercise all powers and to make all determinations,
consistent with the terms of the Plan, in all matters entrusted to
it, and its determinations shall be final and binding on all
parties.
5.4 Indemnity. The Company shall indemnify and hold harmless
the Plan Administrator and any employees to whom administrative
duties under this Plan are delegated, against any and all claims,
loss, damage, expense, or liability arising from any action or
failure to act with respect to this Plan, except in the case of
willful misconduct.
Article VI
Amendment and Termination
6.1 Amendment. The Committee may at any time amend the Plan
in whole or in part. However, no amendment shall be effective to
decrease or restrict any then existing Account or to change the
Company's obligations under any then existing Deferral Election.
<PAGE>
6.2 Board's Right to Terminate. The Board may at any time
terminate the Plan in its entirety, in which event no new Deferral
Elections shall be made, but the obligations of the Company under
existing Deferral Elections shall continue.
Article VII
Miscellaneous
7.1 Unfunded Plan. This Plan is intended to be an "unfunded"
plan maintained primarily to provide deferred compensation for a
"select group of management or highly compensated employees" within
the meaning of the Employee Retirement Income Security Act of 1974,
as amended, and shall be so construed.
7.2 Unsecured General Creditor. This Plan is unfunded.
Benefits shall be paid from the Company's general assets.
Participants and their beneficiaries, heirs, successors, and
assigns shall have no legal or equitable rights, interest or claims
in any property or assets owned or which may be acquired by the
Company. Such assets of the Company shall not be held under any
trust for the benefit of Participants, their beneficiaries, heirs,
successors or assigns, or held in any way as collateral security
against the obligations of the Company under this Plan. The
Company's obligation under the Plan shall be that of an unfunded
and unsecured promise of the Company to pay money in the future.
The Company in its sole discretion, may, however, elect to provide
for its liabilities under this Plan through a trust or funding
vehicle, provided, however, that the terms of any such trust or
funding vehicle shall not alter the status of Participants and
beneficiaries as mere general unsecured creditors of the Company or
otherwise cause the Plan to be funded or benefits taxable to
Participants except upon actual receipt.
7.3 Nonassignability. Neither a Participant nor any other
person shall have any right to commute, sell, assign, transfer,
pledge, anticipate, mortgage, or otherwise encumber, transfer,
hypothecate, or convey in advance of actual receipt the amounts, if
any, payable hereunder, or any part thereof. The rights to all
such amounts are expressly declared to be unassignable and non-
transferable. No part of the amounts payable shall, prior to
actual payment, be subject to seizure or sequestration for the
payment of any debts, judgments, alimony, or separate maintenance
owned by Participants or any other person, nor be transferable by
operation of law in the event of a Participant's or any other
person's bankruptcy or insolvency, except as required by law.
7.4 Not a Contract of Employment. The terms and conditions
of this Plan shall not be deemed to constitute a contract of
employment between the Company and a Participant, and a Participant
shall have no rights against the Company except as may otherwise be
specifically provided herein. Moreover, nothing in the Plan shall
be deemed to give a Participant the right to be retained in the
service of the Company or to interfere with the right of the
Company to discipline or discharge an employee at any time.
7.5 Forfeiture of Benefits. If a Participant's employment is
terminated because of willful misfeasance or gross negligence in
the performance of his or her duties, his or her right to benefits
under this Plan shall, in the discretion of the Committee, be
forfeited, and the Company shall have no further obligation
hereunder to such Participant or his or her beneficiary(ies).
7.6 Terms. Use of the masculine pronoun in this Plan will
include the feminine and use of the singular will include the
plural, unless the context clearly indicates otherwise.
7.7 Captions. The captions of the articles, sections and
paragraphs of this Plan are for convenience only and shall not
control or affect the meaning or construction of any of its
provisions.
7.8 Governing Law. This Plan shall be governed by the laws
of the United States and, to the extent not preempted thereby, the
laws of Pennsylvania.
<PAGE>
7.9 Validity. The illegality or invalidity of any provision
of this Plan shall not affect its remaining parts, but this Plan
shall be construed and enforced without such illegal or invalid
provisions.
7.10 Notice. Any notice or filing required or permitted to
be given to the Plan Administrator under the Plan shall be
sufficient if in writing and hand delivered, or sent by registered
or certified mail, to:
Director, Executive Compensation
and Employee Benefits
Hershey Foods Corporation
100 Crystal A Drive
Hershey, Pennsylvania 17033
Such notice shall be deemed given as of the date of
delivery or, if delivery is made by mail, as of the date shown on
the postmark on the receipt for registration or certification.
7.11 Successors. The provisions of this Plan shall bind and
inure to the benefit of the Company and its successors and assigns.
The term successors as used herein shall include any corporation or
other business entity which shall, whether by merger,
consolidation, purchase of assets, or otherwise, acquire all or
substantially all of the business or assets of the Company, and
successors of any such corporation or other business entity.
7.12 Incapacity. If the Plan Administrator finds that any
Participant or beneficiary to whom a benefit is payable under this
Plan is unable to care for his affairs, any payment due (unless
prior claim therefore shall have been made by a duly authorized
guardian or other legal representative) may be paid, upon
appropriate indemnification of the Plan Administrator, to any
person who is charged with the support of the Participant or
beneficiary. Any such payment shall be payment for the account of
the Participant and shall be a complete discharge of any liability
of the Company to the Participant or beneficiary.
<PAGE>
<TABLE>
EXHIBIT 12
HERSHEY FOODS CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
For the Years Ended December 31, 1995, 1994, 1993, 1992, and 1991
(in thousands of dollars except for ratios)
(Unaudited)
CAPTION
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Earnings:
Income from continuing
operations before
income taxes and
accounting changes. . . . . .$465,953(a) $333,138(b) $510,875(c) $400,988 $363,457
Add (Deduct):
Interest on indebtedness. . . 47,568 37,249 30,224 29,708 29,269
Portion of rents
representative of the
interest factor(d). . . . . . 8,176 8,556 8,175 7,987 7,785
Amortization of debt
expense . . . . . . . . . . . 97 64 84 165 284
Amortization of
capitalized interest. . . . . 3,183 2,958 2,684 1,988 1,390
Adjustment for equity
companies(e). . . . . . . . . - - - 628 262
Adjustment for majority-
owned subsidiary(f) . . . . . - - - 17 (116)
Earnings as adjusted. . . .$524,977 $381,965 $552,042 $441,481 $402,331
Fixed Charges:
Interest on indebtedness . . . . $47,568 $37,249 $30,224 $29,708 $29,269
Portion of rents
representative of the
interest factor(d) . . . . . . . 8,176 8,556 8,175 7,987 7,785
Amortization of debt expense . . 97 64 84 165 284
Capitalized interest . . . . . . 1,957 3,009 4,646 12,055 10,386
Adjustment for 50% equity
company(g) . . . . . . . . . . . - - - - 21
Total fixed charges . . . . . $57,798 $48,878 $43,129 $49,915 $47,745
Ratio of earnings to fixed
charges. . . . . . . . . . . . . . 9.08 7.81 12.80 8.84 8.43
</TABLE>
<PAGE>
NOTES:
(a) Includes a restructuring credit of $.2 million.
(b) Includes a restructuring charge of $106.1 million.
(c) Includes a gain of $80.6 million on the sale of the Corporation's 18.6%
investment interest in Freia Marabou a.s.
(d) Portion of rents representative of the interest factor consists of one-
third of rental expense for operating leases.
(e) 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 April 1992, the Corporation sold
its equity interest in its Brazilian joint venture.
(f) In December 1992, the Corporation purchased the remaining shares of
Hershey Japan. Prior to the acquisition, the Corporation owned 51% of
Hershey Japan.
(g) 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>
HERSHEY FOODS CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
OPERATING RESULTS
The Corporation achieved increased sales in 1995 and 1994. Net sales during
this two-year period increased at a compound annual rate of 3%, primarily
reflecting volume growth from the introduction of new confectionery and
grocery products and from foreign acquisitions, and price increases
principally in the Corporation's pasta and foreign businesses. These increases
were partially offset by lower sales resulting from the divestiture of
Overspecht B.V. (OZF Jamin) in the second quarter of 1995 and, in 1994,
reduced demand for existing domestic confectionery brands and the
discontinuance of the Corporation's refrigerated pudding line.
Hershey Chocolate U.S.A. increased the wholesale price of its standard bar
line and king size bars by approximately eleven percent in December 1995.
These products represented approximately 25% of the Corporation's 1995 sales.
Price increases were intended to offset higher costs for raw materials and
packaging, together with the cumulative impact of inflation on other costs
since the last standard bar price increase nearly five years ago. Hershey
Pasta Group implemented selected price increases in late 1993, early 1994 and
late 1995 in an effort to recover substantial increases in semolina costs. The
price increases have not been sufficient to recover the full impact of the
higher semolina costs, partly due to competition from subsidized pasta imports
into the United States.
Income, excluding the net after-tax effect of restructuring activities
recorded in 1995 and the 1993 net cumulative effect of accounting changes and
the after-tax Freia Marabou a.s (Freia) gain, 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.
The following acquisitions and divestitures occurred during the period:
. December 1995--The acquisition of Henry Heide, Incorporated (Henry
Heide), a confectionery company which manufactures a variety of non-
chocolate confectionery products including JUJYFRUITS candies and
WUNDERBEANS jellybeans.
. December 1995--The Corporation entered into definitive agreements to sell
the assets of Hershey Canada, Inc.'s PLANTERS nut (Planters) and LIFE
SAVERS and BREATH SAVERS hard candy, and BEECH-NUT cough drop (Life
Savers) businesses to Johnvince Foods Group and Beta Brands Inc.,
respectively. Both transactions were completed in January 1996 as part of
a restructuring program announced by the Corporation in late 1994.
. June 1995--The sale of the outstanding shares of OZF Jamin to a
management buyout group at OZF Jamin as part of the restructuring
program. OZF Jamin was purchased by the Corporation in October 1993.
. 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 Ideal Macaroni and
Weiss Noodle companies (Ideal/Mrs. Weiss) in Cleveland, Ohio.
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, from time to time, cause fluctuations in net sales
and net income versus the comparable quarterly periods of prior years.
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NET SALES
Net sales rose $84.4 million or 2% in 1995 and $118.0 million or 3% in 1994.
The increase in 1995 was due to incremental sales from new confectionery and
grocery products, volume growth from existing domestic and foreign
confectionery brands and pasta products, and selected selling price increases,
principally in the Corporation's foreign businesses. These increases were
partially offset by lower sales resulting from the divestiture of OZF Jamin in
the second quarter of 1995 and the discontinuance of the Corporation's
refrigerated pudding line in late 1994. The increase in 1994 was due to volume
growth from new products and businesses acquired in late 1993, offset
substantially by lower sales caused by reduced demand for existing
confectionery and grocery brands. 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.
COSTS AND EXPENSES
Cost of sales as a percent of net sales increased from 57.2% in 1993 to
58.2% in 1994, but declined to 57.6% in 1995. The increase in gross margin in
1995 was primarily the result of manufacturing efficiency improvements,
selling price increases in the Corporation's foreign businesses and the
favorable impact of the OZF Jamin divestiture. These increases were partially
offset by higher costs for certain major raw materials and packaging, along
with inflation in labor and overhead costs. 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 foreign businesses, partially offset by lower costs
resulting from manufacturing efficiency improvements, and pasta selling price
increases.
Selling, marketing and administrative costs increased by 2% in 1995
primarily due to increased advertising for existing confectionery brands and
the introduction of new products, partially offset by reduced promotion and
administrative expenses. 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.
RESTRUCTURING ACTIVITIES
In the fourth quarter of 1994, the Corporation recorded a pre-tax
restructuring charge of $106.1 million ($80.2 million after tax or $.92 per
share) following a comprehensive review of domestic and foreign operations
designed to enhance performance of operating assets by lowering operating and
administrative costs, eliminating underperforming assets and streamlining the
overall decision-making process.
As of December 31, 1995, $81.8 million of restructuring reserves had been
utilized and $16.7 million had been reversed to reflect revisions and changes
in estimates to the original restructuring program. The remaining $7.6 million
of accrued restructuring reserves will be utilized in early 1996 as the final
aspects of the restructuring program are completed, and annual savings of
approximately $18.0 million are expected to be realized thereafter.
During the third quarter of 1995, a pre-tax restructuring charge of $16.6
million was recorded in connection with a voluntary retirement program
announced by the Corporation in August 1995. The charge was primarily related
to the funding of retirement benefits for eligible employees who elected early
retirement. This cash charge will be funded from operating cash flows. The
impact of this charge was more than offset by the partial reversal of 1994
accrued restructuring reserves, resulting in an
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<PAGE>
increase to income before income taxes of $.2 million and an increase to net
income of $2.0 million as the tax benefit associated with the 1995 charge more
than offset the tax provision associated with the reversal of 1994
restructuring reserves.
GAIN ON SALE OF INVESTMENT INTEREST
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 which had the effect of
increasing net income by $40.6 million.
INTEREST EXPENSE, NET
Net interest expense increased $9.5 million in 1995 primarily as a result of
higher short-term interest expense. Short-term interest expense increased due
to higher borrowing rates and increased borrowings associated with the
purchase of approximately 9.0 million shares of the Corporation's Common Stock
from the Hershey Trust Company, as Trustee for the benefit of Milton Hershey
School (Milton Hershey School Trust).
Net interest expense increased $8.4 million in 1994 as higher short-term
interest expense, reduced capitalized interest and lower 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
a 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.
PROVISION FOR INCOME TAXES
The Corporation's effective income tax rate was 39.5%, 44.7%, and 41.8% in
1995, 1994 and 1993, respectively. The lower rate in 1995 compared to 1994 was
primarily due to the impact of restructuring activities. The increase in 1994
compared to 1993 was principally a result of the relatively low foreign income
tax benefit associated with the restructuring charge.
NET CUMULATIVE EFFECT OF ACCOUNTING CHANGES
Effective January 1, 1993, the Corporation adopted Statements of Financial
Accounting Standards No. 106 "Employers' Accounting for Post-retirement
Benefits Other Than Pensions" and No. 109 "Accounting for Income Taxes" 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.
NET INCOME
Net income increased by 53% in 1995. Excluding the net after-tax effects of
the 1995 and 1994 restructuring activities, income increased $15.5 million or
6%. Net income increased $7.8 million or 3% 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 the catch-up adjustments for accounting
changes. Income as a percent of net sales, after excluding the net after-tax
effects of restructuring activities in 1995 and 1994 and the 1993 net
cumulative effect of accounting changes and the after-tax Freia gain, was 7.6%
in 1995, 7.3% in 1994 and 7.4% in 1993.
FINANCIAL POSITION
The Corporation's financial position remained strong during 1995. The
capitalization ratio (total short-term and long-term debt as a percent of
stockholders' equity, short-term and long-term debt) was 42% as of December
31, 1995, and 25% as of December 31, 1994. The ratio of current assets to
current liabilities was 1.1:1 as of December 31, 1995, and 1.2:1 as of
December 31, 1994. The decrease
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<PAGE>
in the current ratio and the increase in the capitalization ratio resulted
primarily from short-term borrowings and the issuance of long-term debt to
finance the purchase of Common Stock from the Milton Hershey School Trust.
ASSETS
Total assets decreased $60.4 million or 2% as of December 31, 1995,
primarily as a result of decreases in current assets, property, plant and
equipment, and intangibles resulting from business acquisitions, offset
somewhat by an increase in other assets.
Current assets decreased by $26.3 million reflecting lower inventories and
current deferred income taxes, offset somewhat by an increase in other current
assets. The decrease in inventories was primarily related to decreases in raw
material inventories. Current deferred income taxes decreased as a result of
the realization in 1995 of the income tax benefit associated with the
restructuring charge recorded in 1994. The increase in other current assets
related to receivables associated with the sale of the Planters and Life
Savers businesses and commodity transactions.
The $32.4 million net decrease in property, plant and equipment reflected
the divestiture of certain businesses and assets, and depreciation expense of
$119.4 million, partially offset by capital additions of $140.6 million.
The decrease in intangibles resulting from business acquisitions was
primarily associated with the sale of the Planters and Life Savers businesses
and the amortization of intangibles, partially offset by an increase related
to the acquisition of Henry Heide. The increase in other assets was primarily
associated with employee retirement plans.
LIABILITIES
Total liabilities increased by $297.8 million or 21% as of December 31,
1995, primarily due to increases in current liabilities and long-term debt.
Current liabilities increased by $68.1 million principally as a result of
higher short-term debt and accrued liabilities, offset somewhat by a decrease
in accrued restructuring reserves. Short-term debt increased as a result of
borrowings associated with the purchase of Common Stock from the Milton
Hershey School Trust. The increase in accrued liabilities principally
reflected increases in liabilities associated with employee retirement plans
as a result of the voluntary retirement program. The decrease in accrued
restructuring reserves reflected the utilization and partial reversal of
reserves related to the 1994 restructuring program.
The increase in long-term debt reflected the issuance of $200 million of
6.7% Notes due 2005 (Notes) in the fourth quarter of 1995. The proceeds from
issuance of the Notes were used to repay domestic commercial paper borrowings
associated with the purchase of Common Stock from the Milton Hershey School
Trust.
STOCKHOLDERS' EQUITY
Total stockholders' equity declined by 25% in 1995, primarily due to the
repurchase of Common Stock. Total stockholders' equity has increased at a
compound annual rate of 4% over the past ten years.
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
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<PAGE>
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.
LIQUIDITY
Historically, the Corporation's major source of financing has been cash
generated from operations. The Corporation's income and, consequently, cash
provided from operations during the year are 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, seasonal
working capital needs peak during the summer months and have been met by
issuing commercial paper.
Over the past three years, cash requirements for share repurchases, capital
additions, dividend payments and several business acquisitions exceeded cash
provided from operating activities and the cash from the sale of the
Corporation's investment interest in Freia by $209.0 million. Total debt,
including debt assumed, increased during the period by $233.1 million. Cash
and cash equivalents increased by $8.2 million during the period.
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,
1995, the Corporation's principal capital commitments included manufacturing
capacity expansion and modernization.
A portion of the $259.7 million gross proceeds from the sale of the
Corporation's Freia investment interest was used for the early repayment of
long-term debt in 1993.
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
3,923,780 shares of Common Stock has been repurchased for approximately $197.7
million under the program, of which 264,000 shares were retired and the
remaining 3,659,780 shares were held as Treasury Stock as of December 31,
1995.
In August 1995, the Corporation purchased an additional 9,049,773 shares of
its Common Stock to be held as Treasury Stock from the Milton Hershey School
Trust for $500.0 million. In connection with the share repurchase program
begun in 1993, a total of 2,000,000 shares were also acquired from the Milton
Hershey School Trust in 1993 for approximately $103.1 million. As of December
31, 1995, a total of 12,709,553 shares were held as Treasury Stock.
In February 1996, the Corporation's Board of Directors approved an
additional share repurchase program to acquire from time to time, through open
market or privately negotiated transactions, up to $200 million of Common
Stock.
In October 1995, the Corporation issued $200 million of Notes under Form S-3
Registration Statements which were declared effective in June 1990 and
November 1993. As of December 31, 1995, $300 million of debt securities
remained available for issuance under the November 1993 Registration
Statement. Proceeds from any offering of the $300 million of debt securities
available under the shelf registration may be used for general corporate
requirements including, reducing existing commercial
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<PAGE>
paper borrowings, financing capital additions and funding future business
acquisitions and working capital requirements.
In order to minimize its financing costs and to manage interest rate
exposure, the Corporation entered into interest rate swap agreements to
effectively convert a portion of its floating rate debt to fixed rate debt. As
of December 31, 1995, the Corporation had agreements outstanding with an
aggregate notional amount of $200.0 million, with maturities through 1997. Any
interest rate differential on interest rate swaps is recognized as an
adjustment to interest expense over the term of the agreement. The
Corporation's risk related to swap agreements is limited to the cost of
replacing such agreements at current market rates.
In December 1995, the Corporation entered into committed credit facility
agreements with a syndicate of banks under which it could borrow up to $600
million as of December 31, 1995, with options to increase borrowings by $1.0
billion with the concurrence of the banks. Of the total committed credit
facility, $200 million is for a renewable 364-day term and $400 million is
effective for a five-year term. The credit facilities may be used to fund
general corporate requirements, to support commercial paper borrowings and, in
certain instances, to finance future business acquisitions. Lines of credit
previously maintained by the Corporation were significantly reduced when the
credit facility agreements became effective.
CASH FLOW ACTIVITIES
Cash provided from operating activities totaled $1.2 billion during the past
three years. Over this period, depreciation and amortization have increased 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 1995 and 1994, restructuring
expenses.
Investing activities included capital additions, several business
acquisitions, and the sale of an 18.6% investment interest in Freia in 1993.
The income tax effects associated with the 1995 and 1994 restructuring
activities 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 and expansion and modernization of
existing facilities. Businesses acquired during the past three years included
Henry Heide in 1995 and OZF Jamin, Sperlari and Ideal/Mrs. Weiss in 1993. OZF
Jamin was sold in 1995 as part of the Corporation's restructuring program.
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 included debt borrowings and repayments, payment of
dividends, the exercise of stock options, incentive plan transactions 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, a share repurchase
program and the purchase of Common Stock from the Milton Hershey School Trust.
A portion of the proceeds received from the sale of the Freia investment was
used to repay long-term debt in 1993. The proceeds from the issuance of $200
million of Notes in October 1995 were used to reduce short-term borrowings.
During the past three years, a total of 12,973,553 shares of Common Stock has
been repurchased for approximately $697.7 million.
COMMODITY PRICE RISK MANAGEMENT
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
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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, sugar and corn sweeteners, 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, sugar and corn sweetener
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 prices rose from 1992 to 1994 due to cocoa demand exceeding
production. During 1995, prices for cocoa futures were relatively stable as a
result of good West African crop development and yield. During 1996, any
problems with the development of the West African crop to be harvested
beginning in the fall, could result in demand again exceeding production,
leading to possible cocoa futures price increases. The Corporation's costs
during 1996 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 1995, the Corporation's semolina costs per pound
remained at historically high levels. The exceptionally high costs resulted
from short supplies of durum wheat caused by a poor harvest of the North
American crop in 1993 and 1994, combined with U.S. Government tariffs on
imports of Canadian wheat. The tariff agreement expired as scheduled in 1995,
but prices remained at historically high levels due to a continued worldwide
shortage of durum wheat.
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 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.
MARKET PRICES AND DIVIDENDS
Cash dividends paid on the Corporation's Common Stock and Class B Stock were
$110.1 million in 1995 and $107.0 million in 1994. The annual dividend rate on
the Common Stock is $1.44 per share, an increase of 11% over the 1994 rate of
$1.30 per share. The 1995 dividend represented the 21st consecutive year of
Common Stock dividend increases.
On February 6, 1996, the Corporation's Board of Directors declared a
quarterly dividend of $.36 per share of Common Stock payable on March 15,
1996, to stockholders of record as of February 23, 1996. It is the
Corporation's 265th consecutive Common Stock dividend. A quarterly dividend of
$.325 per share of Class B Stock also was declared.
Hershey Foods Corporation's Common Stock is listed and traded principally on
the New York Stock Exchange (NYSE) under the ticker symbol "HSY."
Approximately 30.5 million shares of the Corporation's Common Stock were
traded during 1995. The Class B Stock is not publicly traded.
A-7
<PAGE>
The closing price of the Common Stock on December 31, 1995, was $65. There
were 38,480 stockholders of record of the Common Stock and the Class B Stock
as of December 31, 1995.
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:
<TABLE>
<CAPTION>
DIVIDENDS PAID COMMON STOCK
PER SHARE PRICE RANGE*
-------------- ---------------
COMMON CLASS B
STOCK STOCK HIGH LOW
------ ------- ------- -------
<S> <C> <C> <C> <C>
1995
1st Quarter $ .325 $ .2950 $52 3/8 $48
2nd Quarter .325 .2950 55 7/8 50 1/8
3rd Quarter .360 .3250 64 7/8 53 5/8
4th Quarter .360 .3250 67 7/8 59
------ -------
Total $1.370 $1.2400
====== =======
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
====== =======
</TABLE>
- --------
* NYSE-Composite Quotations for Common Stock by calendar quarter.
RETURN MEASURES
OPERATING RETURN ON AVERAGE STOCKHOLDERS' EQUITY
The Corporation's operating return on average stockholders' equity was 22.2%
in 1995. Over the most recent five-year period, the return has ranged from
17.0% in 1991 to 22.2% in 1995. For the purpose of calculating operating
return on average stockholders' equity, earnings is defined as net income,
excluding the catch-up adjustments for accounting changes and the after-tax
gain on the sale of the investment in Freia in 1993, and the after-tax
restructuring activities in 1994 and 1995.
OPERATING RETURN ON AVERAGE INVESTED CAPITAL
The Corporation's operating return on average invested capital was 17.1% in
1995. Over the most recent five-year period, the return has ranged from 13.8%
in 1991 to 17.1% in 1995. 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 sale of the investment in Freia, the catch-up adjustments for
accounting changes, the after-tax restructuring activities in 1994 and 1995,
and the after-tax effect of interest on long-term debt.
A-8
<PAGE>
HERSHEY FOODS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31, 1995 1994 1993
- ---------------------------------------------------------------------------------
IN THOUSANDS OF DOLLARS EXCEPT PER SHARE
AMOUNTS
<S> <C> <C> <C>
NET SALES $3,690,667 $3,606,271 $3,488,249
---------- ---------- ----------
COSTS AND EXPENSES:
Cost of sales 2,126,274 2,097,556 1,995,502
Selling, marketing and administrative 1,053,758 1,034,115 1,035,519
---------- ---------- ----------
Total costs and expenses 3,180,032 3,131,671 3,031,021
---------- ---------- ----------
RESTRUCTURING CREDIT (CHARGE) 151 (106,105) --
GAIN ON SALE OF INVESTMENT INTEREST -- -- 80,642
---------- ---------- ----------
INCOME BEFORE INTEREST, INCOME TAXES AND
ACCOUNTING CHANGES 510,786 368,495 537,870
Interest expense, net 44,833 35,357 26,995
---------- ---------- ----------
INCOME BEFORE INCOME TAXES AND ACCOUNTING
CHANGES 465,953 333,138 510,875
Provision for income taxes 184,034 148,919 213,642
---------- ---------- ----------
INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING
CHANGES 281,919 184,219 297,233
Net cumulative effect of accounting changes -- -- (103,908)
---------- ---------- ----------
NET INCOME $ 281,919 $ 184,219 $ 193,325
========== ========== ==========
INCOME PER SHARE:
Before accounting changes $ 3.40 $ 2.12 $ 3.31
Net cumulative effect of accounting changes -- -- (1.16)
---------- ---------- ----------
Net income $ 3.40 $ 2.12 $ 2.15
========== ========== ==========
CASH DIVIDENDS PAID PER SHARE:
Common Stock $ 1.370 $ 1.250 $ 1.140
Class B Common Stock 1.240 1.135 1.035
</TABLE>
The notes to consolidated financial statements are an integral part of these
statements.
A-9
<PAGE>
HERSHEY FOODS CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, 1995 1994
- -------------------------------------------------------------------------------
IN THOUSANDS OF DOLLARS
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 32,346 $ 26,738
Accounts receivable--trade 326,024 331,670
Inventories 397,570 445,702
Deferred income taxes 84,785 105,948
Prepaid expenses and other 81,598 38,608
---------- ----------
Total current assets 922,323 948,666
PROPERTY, PLANT AND EQUIPMENT, NET 1,436,009 1,468,397
INTANGIBLES RESULTING FROM BUSINESS ACQUISITIONS 428,714 453,582
OTHER ASSETS 43,577 20,336
---------- ----------
Total assets $2,830,623 $2,890,981
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 127,067 $ 115,428
Accrued liabilities 300,549 265,283
Accrued restructuring reserves 7,574 82,055
Accrued income taxes 15,514 8,718
Short-term debt 413,268 316,783
Current portion of long-term debt 383 7,954
---------- ----------
Total current liabilities 864,355 796,221
LONG-TERM DEBT 357,034 157,227
OTHER LONG-TERM LIABILITIES 333,814 303,056
DEFERRED INCOME TAXES 192,461 193,377
---------- ----------
Total liabilities 1,747,664 1,449,881
---------- ----------
STOCKHOLDERS' EQUITY:
Preferred Stock, shares issued: none in 1995 and 1994 -- --
Common Stock, shares issued: 74,733,982 in 1995 and
74,679,357 in 1994 74,734 74,679
Class B Common Stock, shares issued: 15,241,454 in
1995 and 15,242,979 in 1994 15,241 15,243
Additional paid-in capital 47,732 49,880
Cumulative foreign currency translation adjustments (29,240) (24,537)
Unearned ESOP compensation (35,128) (38,321)
Retained earnings 1,694,696 1,522,867
Treasury--Common Stock shares, at cost: 12,709,553 in
1995 and 3,187,139 in 1994 (685,076) (158,711)
---------- ----------
Total stockholders' equity 1,082,959 1,441,100
---------- ----------
Total liabilities and stockholders' equity $2,830,623 $2,890,981
========== ==========
</TABLE>
The notes to consolidated financial statements are an integral part of these
balance sheets.
A-10
<PAGE>
HERSHEY FOODS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31, 1995 1994 1993
- --------------------------------------------------------------------------------
IN THOUSANDS OF DOLLARS
<S> <C> <C> <C>
CASH FLOWS PROVIDED FROM (USED BY)
OPERATING ACTIVITIES
Net income $ 281,919 $ 184,219 $ 193,325
Adjustments to reconcile net income to net
cash provided from operations:
Net cumulative effect of accounting changes -- -- 103,908
Depreciation and amortization 133,884 129,041 113,064
Deferred income taxes 26,380 (2,328) 11,047
Restructuring (credit) charge (151) 106,105 --
Gain on sale of investment interest -- -- (80,642)
Changes in assets and liabilities, net of
effects from business acquisitions and
divestitures:
Accounts receivable--trade 1,666 (36,696) (100,957)
Inventories 28,147 7,740 32,347
Accounts payable 14,767 (10,230) (12,809)
Other assets and liabilities (11,297) (58,146) 111,358
Other, net 19,614 20,032 9,399
--------- --------- ---------
Net Cash Provided from Operating Activities 494,929 339,737 380,040
--------- --------- ---------
CASH FLOWS PROVIDED FROM (USED BY)
INVESTING ACTIVITIES
Capital additions (140,626) (138,711) (211,621)
Business acquisitions (12,500) -- (164,787)
Sale of investment interest -- -- 259,718
Other, net 8,720 (4,492) (717)
--------- --------- ---------
Net Cash (Used by) Investing Activities (144,406) (143,203) (117,407)
--------- --------- ---------
CASH FLOWS PROVIDED FROM (USED BY)
FINANCING ACTIVITIES
Net increase (decrease) in short-term debt 103,530 (20,503) 67,485
Long-term borrowings 202,448 102 1,130
Repayment of long-term debt (7,887) (14,413) (104,792)
Cash dividends paid (110,090) (106,961) (100,499)
Exercise of stock options 15,106 3,494 2,574
Incentive plan transactions (21,903) (7,726) (4,903)
Repurchase of Common Stock (526,119) (39,748) (131,783)
--------- --------- ---------
Net Cash (Used by) Financing Activities (344,915) (185,755) (270,788)
--------- --------- ---------
Increase (Decrease) in Cash and Cash
Equivalents 5,608 10,779 (8,155)
Cash and Cash Equivalents as of January 1 26,738 15,959 24,114
--------- --------- ---------
Cash and Cash Equivalents as of December 31 $ 32,346 $ 26,738 $ 15,959
========= ========= =========
Interest Paid $ 43,731 $ 36,803 $ 32,073
Income Taxes Paid 148,629 177,876 171,586
</TABLE>
The notes to consolidated financial statements are an integral part of these
statements.
A-11
<PAGE>
HERSHEY FOODS CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<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 COMPENSATION EARNINGS STOCK EQUITY
- ---------------------------------------------------------------------------------------------------------------------------
IN THOUSANDS OF
DOLLARS
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AS OF JANUARY
1, 1993 $ -- $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 (195) (195)
Exercise of stock
options (1,074) (1,074)
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 (1,264) (1,264)
Exercise of stock
options (548) (548)
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
Net income 281,919 281,919
Dividends:
Common Stock, $1.370
per share (91,190) (91,190)
Class B Common
Stock, $1.240 per
share (18,900) (18,900)
Foreign currency
translation
adjustments (4,703) (4,703)
Conversion of Class B
Common Stock into
Common Stock 2 (2) --
Incentive plan
transactions (180) (180)
Exercise of stock
options 53 (2,456) (246) (2,649)
Employee stock
ownership trust
transactions 488 3,193 3,681
Repurchase of Common
Stock (526,119) (526,119)
----- ------- ------- ------- -------- -------- ---------- --------- ----------
BALANCE AS OF
DECEMBER 31, 1995 $ -- $74,734 $15,241 $47,732 $(29,240) $(35,128) $1,694,696 $(685,076) $1,082,959
===== ======= ======= ======= ======== ======== ========== ========= ==========
</TABLE>
The notes to consolidated financial statements are an integral part of these
statements.
A-12
<PAGE>
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. Certain
reclassifications have been made to prior year amounts to conform to the 1995
presentation.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Corporation and its subsidiaries after elimination of intercompany accounts
and transactions.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates,
particularly for accounts receivable and certain current and long-term
liabilities.
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, sugar and corn sweeteners 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 $101.5 million and $86.7 million as of December 31, 1995 and
1994, respectively.
A-13
<PAGE>
FOREIGN CURRENCY TRANSLATION
Results of operations for foreign entities are translated using the average
exchange rates during the period. For foreign 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 foreign
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, which the
Corporation has met. License fees and royalties, payable under the terms of
the agreements, are expensed as incurred.
RESEARCH AND DEVELOPMENT
The Corporation expenses research and development costs as incurred.
Research and development expense was $26.2 million, $26.3 million and $26.2
million in 1995, 1994 and 1993, respectively.
ADVERTISING
The Corporation expenses advertising costs as incurred. Advertising expense
was $159.2 million, $120.6 million and $130.0 million in 1995, 1994 and 1993,
respectively. Prepaid advertising as of December 31, 1995 and 1994 was $3.0
million and $8.5 million, respectively.
2. ACQUISITIONS AND DIVESTITURES
In December 1995, the Corporation completed the acquisition of the
outstanding shares of the confectionery company Henry Heide, Incorporated
(Henry Heide), for approximately $12.5 million. Henry Heide's headquarters and
manufacturing facility are located in New Brunswick, N.J., where it
manufactures a variety of non-chocolate confectionery products including
JUJYFRUITS candies and WUNDERBEANS jellybeans.
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 Ideal Macaroni
and Weiss Noodle companies for approximately $14.6 million.
A-14
<PAGE>
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 $10.6 million in 1995 and $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 December 1995, the Corporation entered into definitive agreements to sell
the assets of Hershey Canada, Inc.'s PLANTERS nut (Planters) and LIFE SAVERS
and BREATH SAVERS hard candy, and BEECH-NUT cough drop (Life Savers)
businesses to Johnvince Foods Group and Beta Brands Inc., respectively. Both
transactions were completed in January 1996, as part of a restructuring
program announced by the Corporation in late 1994.
In June 1995, the Corporation completed the sale of the outstanding shares
of Overspecht B.V. (OZF Jamin) to a management buyout group at OZF Jamin, as
part of the Corporation's restructuring program. The Corporation purchased the
outstanding shares of OZF Jamin in October 1993 for approximately $20.2
million. OZF Jamin manufactures chocolate and non-chocolate confectionery
products, cookies, biscuits and ice cream for distribution primarily to
customers in the Netherlands and Belgium.
3. RESTRUCTURING ACTIVITIES
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 foreign 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 foreign 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.
As of December 31, 1995, $81.8 million of restructuring reserves had been
utilized and $16.7 million had been reversed to reflect revisions and changes
in estimates to the original restructuring program. The remaining $7.6 million
of accrued restructuring reserves will be utilized in early 1996 as the final
aspects of the restructuring program are completed. Operating cash flows were
used to fund cash requirements which represented approximately 25% of the
total reserves utilized. The non-cash portion of restructuring reserve
utilization was associated primarily with the divestiture of foreign
businesses and the discontinuation of certain product lines.
During the third quarter of 1995, a pre-tax restructuring charge of $16.6
million was recorded in connection with a voluntary retirement program
announced by the Corporation in August 1995. The charge was primarily related
to the funding of retirement benefits for eligible employees who elected early
retirement. This cash charge will be funded from operating cash flows. The
impact of this charge was more than offset by the partial reversal of 1994
accrued restructuring reserves resulting in an increase to income before
income taxes of $.2 million and an increase to net income of $2.0 million, as
the tax benefit associated with the 1995 charge more than offset the tax
provision associated with the reversal of 1994 restructuring reserves.
A-15
<PAGE>
4. GAIN ON SALE OF INVESTMENT INTEREST
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. This gain had
the effect of increasing net income by $40.6 million. Gross proceeds from the
sale amounted to $259.7 million.
5. RENTAL AND LEASE COMMITMENTS
Rent expense was $24.9 million, $25.7 million and $24.5 million for 1995,
1994 and 1993, 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, 1995, were: 1996, $12.6 million; 1997,
$11.6 million; 1998, $10.8 million; 1999, $12.7 million; 2000, $12.6 million;
2001 and beyond, $80.7 million.
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, 1995 and 1994, 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, 1995 and 1994, based upon quoted market prices for the same or
similar debt issues.
As of December 31, 1995, the Corporation had foreign exchange forward
contracts maturing in 1996 and 1997 to purchase $54.7 million in foreign
currency, primarily Canadian dollars, British sterling, and Swiss francs, and
to sell $26.4 million in foreign currency, primarily Italian lira, Canadian
dollars and 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, 1995 and 1994, the Corporation had purchased
foreign exchange options of $11.5 million and $11.6 million, respectively, and
written foreign exchange options of $8.9 million and $10.9 million as of
December 31, 1995 and 1994, respectively, 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 market quotations. As of December 31, 1995
and 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, 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.
In order to minimize its financing costs and to manage interest rate
exposure, the Corporation entered into interest rate swap agreements to
effectively convert a portion of its floating rate debt to fixed rate debt. As
of December 31, 1995, the Corporation had agreements outstanding with an
aggregate notional amount of $200.0 million with maturities through 1997. As
of December 31, 1995,
A-16
<PAGE>
interest rates payable were at a weighted average fixed rate of 5.6% and
interest rates receivable were floating based on 30-day commercial paper
composite rates. Any interest rate differential on interest rate swaps is
recognized as an adjustment to interest expense over the term of the
agreement. The Corporation's risk related to swap agreements is limited to the
cost of replacing such agreements at current market rates.
7. INTEREST EXPENSE
Interest expense, net consisted of the following:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31, 1995 1994 1993
- ----------------------------------------------------------------
IN THOUSANDS OF DOLLARS
<S> <C> <C> <C>
Long-term debt and lease obligations $20,949 $19,103 $23,016
Short-term debt 28,576 21,155 11,854
Capitalized interest (1,957) (3,009) (4,646)
------- ------- -------
Interest expense, gross 47,568 37,249 30,224
Interest income (2,735) (1,892) (3,229)
------- ------- -------
Interest expense, net $44,833 $35,357 $26,995
======= ======= =======
</TABLE>
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. In December 1995, the Corporation entered into committed credit facility
agreements with a syndicate of banks under which it could borrow up to $600
million as of December 31, 1995, with options to increase borrowings by $1.0
billion with the concurrence of the banks. Of the total committed credit
facility, $200 million is for a renewable 364-day term and $400 million is
effective for a five-year term. The credit facilities may be used to fund
general corporate requirements, to support commercial paper borrowings and, in
certain instances, to finance future business acquisitions. As of December 31,
1994, 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, at the lending banks' prime commercial interest
rates or lower. These lines of credit were reduced by the Corporation to
approximately $97.7 million when the credit facility agreements became
effective. The Corporation had combined domestic commercial paper borrowings
and short-term foreign bank loans against its credit facilities and lines of
credit of $413.3 million as of December 31, 1995, and $316.8 million against
its lines of credit as of December 31, 1994. The weighted average interest
rates on short-term borrowings outstanding as of December 31, 1995 and 1994
were 5.7% and 6.0%, respectively.
The credit facilities and lines of credit were supported by commitment fee
arrangements. The average fee was approximately .06% per annum of the
commitment. The Corporation is in compliance with all covenants included in
the credit facility agreements. 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 $24.8 million and $23.0 million
as of December 31, 1995 and 1994, respectively.
A-17
<PAGE>
9. LONG-TERM DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, 1995 1994
- ----------------------------------------------------------------------
IN THOUSANDS OF DOLLARS
<S> <C> <C>
Medium-term Notes, 8.45% to 9.92%, due 1995-1998 $ 40,400 $ 45,400
6.7% Notes due 2005 200,000 --
8.8% Debentures due 2021 100,000 100,000
Other obligations, net of unamortized debt discount 17,017 19,781
-------- --------
Total long-term debt 357,417 165,181
Less--current portion 383 7,954
-------- --------
Long-term portion $357,034 $157,227
======== ========
</TABLE>
In October 1995, the Corporation issued $200 million of 6.7% Notes due 2005
(Notes) under Form S-3 Registration Statements which were declared effective
in June 1990 and November 1993. The proceeds from issuance of the Notes were
used to reduce short-term borrowings.
Aggregate annual maturities during the next five years are: 1996, $.4
million; 1997, $15.6 million; 1998, $25.2 million; 1999, $.2 million; and
2000, $2.2 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:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31, 1995 1994 1993
- ------------------------------------------------------------------------------
IN THOUSANDS OF DOLLARS
<S> <C> <C> <C>
Domestic $452,084 $411,089 $417,226
Foreign 13,869 (77,951) 13,007
Gain on sale of investment interest -- -- 80,642
-------- -------- --------
Income before income taxes and accounting changes $465,953 $333,138 $510,875
======== ======== ========
</TABLE>
The provision for income taxes excluding the FAS No. 109 catch-up adjustment
in 1993, was as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31, 1995 1994 1993
- ----------------------------------------------------------------
IN THOUSANDS OF DOLLARS
<S> <C> <C> <C>
Current:
Federal $135,034 $126,234 $141,541
State 22,620 24,712 37,358
Foreign -- 301 23,696
-------- -------- --------
Current provision for income taxes 157,654 151,247 202,595
-------- -------- --------
Deferred:
Federal 12,455 6,221 2,949
State 8,198 2,652 1,764
Foreign 5,727 (11,201) 6,334
-------- -------- --------
Deferred provision for income taxes 26,380 (2,328) 11,047
-------- -------- --------
Total provision for income taxes $184,034 $148,919 $213,642
======== ======== ========
</TABLE>
The 1994 Foreign deferred income tax benefit was associated primarily with
the restructuring charge recorded in the fourth quarter of that year.
A-18
<PAGE>
The tax effects of the significant temporary differences which comprised the
deferred tax assets and liabilities were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1995 1994
- ----------------------------------------------------------------------
IN THOUSANDS OF DOLLARS
<S> <C> <C>
Deferred tax assets:
Post-retirement benefit obligations $ 85,907 $ 85,530
Accrued expenses and other reserves 78,506 75,949
Net operating loss carryforwards, net of valuation
allowances of $25,544 in 1995 and $7,860 in 1994 7,298 7,913
Accrued trade promotion reserves 16,389 14,926
Restructuring reserves 3,352 19,598
Other 24,517 30,830
-------- --------
Total deferred tax assets 215,969 234,746
-------- --------
Deferred tax liabilities:
Depreciation 239,389 231,035
Other 84,256 91,140
-------- --------
Total deferred tax liabilities 323,645 322,175
-------- --------
Net deferred tax liabilities $107,676 $ 87,429
======== ========
Included in:
Current deferred tax assets, net $ 84,785 $105,948
Non-current deferred tax liabilities, net 192,461 193,377
-------- --------
Net deferred tax liabilities $107,676 $ 87,429
======== ========
</TABLE>
As of December 31, 1995, the Corporation had $67.4 million of operating loss
carryforwards available to reduce the future taxable income of certain foreign
subsidiaries. Loss carryforwards of $24.0 million must be utilized within the
next ten years and $43.4 million can be utilized over an indefinite period.
The following table reconciles the Federal statutory income tax rate with
the Corporation's effective income tax rate:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31, 1995 1994 1993
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal statutory income tax rate 35.0% 35.0% 35.0%
Increase (reduction) resulting from:
State income taxes, net of Federal income tax benefits 4.6 6.0 6.2
Restructuring (credit) charge for which no tax benefit was
provided (.3) 4.5 --
Non-deductible acquisition costs .6 .8 .6
Other, net (.4) (1.6) --
---- ---- ----
Effective income tax rate 39.5% 44.7% 41.8%
==== ==== ====
</TABLE>
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
A-19
<PAGE>
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:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31, 1995 1994 1993
- -----------------------------------------------------------------------------
IN THOUSANDS OF DOLLARS
<S> <C> <C> <C>
Service cost $ 25,311 $ 30,077 $ 27,835
Interest cost on projected benefit obligations 32,531 28,351 26,423
Investment (return) loss on plan assets (71,578) 8,288 (46,232)
Net amortization and deferral 40,823 (40,550) 18,519
-------- -------- --------
Corporate sponsored plans 27,087 26,166 26,545
Multi-employer plans 361 374 612
Other 615 622 678
-------- -------- --------
Total pension expense $ 28,063 $ 27,162 $ 27,835
======== ======== ========
</TABLE>
The funded status and amounts recognized in the consolidated balance sheets
for the retirement plans were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1994
----------------------- -----------------------
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 $17,241 $417,027 $310,061 $33,272
======= ======== ======== =======
Accumulated benefit
obligations $17,833 $447,792 $330,161 $39,966
======= ======== ======== =======
Actuarial present value of
projected benefit obligations $27,005 $476,439 $367,656 $43,250
Plan assets at fair value 19,765 389,064 341,373 1,748
------- -------- -------- -------
Plan assets less than
projected benefit obligations 7,240 87,375 26,283 41,502
Net gain (loss) unrecognized
at date of transition 525 (818) 1,711 (2,198)
Prior service cost and
amendments not yet recognized
in earnings (1,159) (28,701) (19,620) (1,744)
Unrecognized net loss from
past experience different
than that assumed (3,615) (3,660) (9,711) (455)
Minimum liability adjustment -- 21,678 -- 4,031
------- -------- -------- -------
Pension liability (prepaid
pension expense) $ 2,991 $ 75,874 $ (1,337) $41,136
======= ======== ======== =======
</TABLE>
The projected benefit obligations for the plans were determined principally
using discount rates of 7.25% as of December 31, 1995, and 8.5% as of December
31, 1994. For both 1995 and 1994 the assumed long-term rate of return on plan
assets was 9.5%. The assumed long-term compensation increase rate for 1995 and
1994 was primarily 4.8%.
A-20
<PAGE>
In the third quarter of 1995, the Corporation offered a voluntary retirement
program to domestic eligible employees age 55 and over. The voluntary
retirement program gave eligible salaried employees an opportunity to retire
with enhanced retirement benefits. The pre-tax impact on pension expense of
the 1995 charge was $13.0 million or $7.7 million after tax. This amount has
not been included in the disclosure of pension expense by component.
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 expensed such benefits 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:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31, 1995 1994 1993
- --------------------------------------------------------------------------
IN THOUSANDS OF DOLLARS
<S> <C> <C> <C>
Service cost $ 3,262 $ 3,642 $ 3,997
Interest cost on projected benefit obligations 12,918 13,334 12,897
Amortization (2,322) (1,028) (280)
------- ------- -------
Total $13,858 $15,948 $16,614
======= ======= =======
</TABLE>
Obligations are unfunded and the actuarial present values of accumulated
post-retirement benefit obligations recognized in the consolidated balance
sheets were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1995 1994
- ----------------------------------------------------------------------------
IN THOUSANDS OF DOLLARS
<S> <C> <C>
Retirees $ 78,090 $ 92,051
Fully eligible active plan participants 24,686 26,030
Other active plan participants 57,448 49,338
-------- --------
Total 160,224 167,419
Plan amendments 31,377 19,224
Unrecognized net gain from past experience different than
that assumed 20,892 20,285
-------- --------
Accrued post-retirement benefits $212,493 $206,928
======== ========
</TABLE>
The accumulated post-retirement benefit obligations were determined
principally using discount rates of 7.25% and 8.5% as of December 31, 1995 and
1994, respectively. The assumed average health care cost trend rate used in
measuring the accumulated post-retirement benefit obligation as of December
31, 1995, was 6% which was also the ultimate trend rate. As of December 31,
1994, this rate
A-21
<PAGE>
was 12%, gradually declining to approximately 7% by 2003. 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, 1995 and 1994, by $22.2 million and $23.5 million, respectively, and would
increase the sum of the net service and interest cost components of net post-
retirement benefit costs for 1995 and 1994 by $2.4 million and $2.8 million,
respectively.
The pre-tax impact on post-retirement benefits expense and liabilities of
the 1995 charge for the voluntary retirement program was $.4 million or $.2
million after tax. This amount has not been included in the disclosure of net
post-retirement benefit costs by component.
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, 1995 and
1994. Net life insurance expense, including interest expense, was included in
selling, marketing and administrative expenses.
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 1995 and 1994, 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, 1995, the ESOP held 285,757 of allocated
shares and 875,464 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 1995, 1994 and 1993 was $1.9 million, $1.7 million and $2.0
million, respectively. Dividends paid on unallocated ESOP shares were $1.2
million in 1995, 1994 and 1993. 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, 1995, 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, 1995, a combined total of 89,975,436
shares of both classes of common stock had been issued of which 77,265,883
shares were outstanding. No shares of the Preferred Stock were issued or
outstanding during the three-year period ended December 31, 1995.
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
A-22
<PAGE>
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 1995, 1994 and 1993, a total of 1,525 shares, 10,300
shares and 4,000 shares, respectively, of Class B Stock were converted into
Common Stock.
Hershey Trust Company, as Trustee for the benefit of Milton Hershey School
(Milton Hershey School Trust), as institutional fiduciary for estates and
trusts unrelated to Milton Hershey School, and as direct owner of investment
shares, held a total of 12,300,979 shares of the Common Stock, and as Trustee
for the benefit of Milton Hershey School, held 15,153,003 shares of the Class
B Stock as of December 31, 1995, and was entitled to cast approximately 76% of
the total votes of both classes of the Corporation's common stock. The Milton
Hershey School Trust must approve the issuance of shares of Common Stock or
any other action which would result in the Milton Hershey School 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
3,923,780 shares of Common Stock had been acquired for approximately $197.7
million under the program, of which 264,000 shares were retired and the
remaining 3,659,780 shares were held as Treasury Stock as of December 31,
1995.
In August 1995, the Corporation purchased an additional 9,049,773 shares of
its Common Stock to be held as Treasury Stock from the Milton Hershey School
Trust for $500.0 million. In connection with the share repurchase program
begun in 1993, a total of 2,000,000 shares were also acquired from the Milton
Hershey School Trust in 1993 for approximately $103.1 million. As of December
31, 1995, a total of 12,709,553 shares were held as Treasury Stock.
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 82,843,541 for 1995, 87,018,626 for 1994
and 89,757,135 for 1993.
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, 1995, a total of 133,365 contingent performance stock
units had been granted for potential future distribution, primarily related to
three-year cycles ending December 31, 1995, 1996 and 1997. Deferred
performance stock units and accumulated dividend amounts totaled 211,113
shares as of December 31, 1995.
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 ten 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, 1995. Stock options exercisable as of December 31, 1995 and
1994 were 1,450,900 shares and 1,734,750 shares, respectively.
A-23
<PAGE>
Stock option activity was as follows:
<TABLE>
<CAPTION>
SHARES UNDER OPTIONS
-----------------------------
NUMBER OPTION PRICE
OF SHARES PER SHARE
- -------------------------------------------------------------
<S> <C> <C> <C> <C>
Outstanding--January 1, 1993 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
Granted 118,700 $48 3/8
Exercised (421,550) $25 3/8 to 47
Cancelled (13,200) $44 3/4 to 49
---------
Outstanding--December 31, 1995 2,217,900 $25 3/8 to 53
=========
</TABLE>
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 $14.8 million and $14.0 million
as of December 31, 1995 and 1994, 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 $282.0 million and $318.5 million as of December 31, 1995 and
1994, respectively, and all inventories were stated at amounts that did not
exceed realizable values. Total inventories were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1995 1994
-----------------------------------------
IN THOUSANDS OF
DOLLARS
<S> <C> <C>
Raw materials $189,371 $234,317
Goods in process 28,201 28,680
Finished goods 249,106 247,272
-------- --------
Inventories at FIFO 466,678 510,269
Adjustment to LIFO (69,108) (64,567)
-------- --------
Total inventories $397,570 $445,702
======== ========
</TABLE>
A-24
<PAGE>
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment balances included construction in progress of
$119.5 million and $76.9 million as of December 31, 1995 and 1994,
respectively. Major classes of property, plant and equipment were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1995 1994
--------------------------------------------------------------
IN THOUSANDS OF DOLLARS
<S> <C> <C>
Land $ 35,385 $ 50,678
Buildings 471,663 467,950
Machinery and equipment 1,683,338 1,604,901
---------- ----------
Property, plant and equipment, gross 2,190,386 2,123,529
Accumulated depreciation (754,377) (655,132)
---------- ----------
Property, plant and equipment, net $1,436,009 $1,468,397
========== ==========
ACCRUED LIABILITIES
Accrued liabilities were as follows:
<CAPTION>
DECEMBER 31, 1995 1994
--------------------------------------------------------------
IN THOUSANDS OF DOLLARS
<S> <C> <C>
Payroll and other compensation $ 97,710 $ 67,155
Advertising and promotion 87,368 81,561
Other 115,471 116,567
---------- ----------
Total accrued liabilities $ 300,549 $ 265,283
========== ==========
OTHER LONG-TERM LIABILITIES
Other long-term liabilities were as follows:
<CAPTION>
DECEMBER 31, 1995 1994
--------------------------------------------------------------
IN THOUSANDS OF DOLLARS
<S> <C> <C>
Accrued post-retirement benefits $ 204,044 $ 198,251
Other 129,770 104,805
---------- ----------
Total other long-term liabilities $ 333,814 $ 303,056
========== ==========
</TABLE>
A-25
<PAGE>
17. SEGMENT INFORMATION
The Corporation operates in a single consumer foods line of business,
encompassing the domestic and foreign manufacture, distribution and sale of
chocolate, confectionery, grocery and pasta products. The Corporation's
principal operations and markets are located in the United States.
Operations in Canada and Europe represent the majority of the Corporation's
foreign business. Historically, transfers of product between geographic areas
have not been significant. In 1995 and 1994, sales to Wal-Mart Stores, Inc. and
Subsidiaries amounted to approximately 11% and 10% of total net sales,
respectively. Net sales, income before interest, income taxes and accounting
changes, and identifiable assets by geographic segment were as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31, 1995 1994 1993
- ------------------------------------------------------------------------------
IN THOUSANDS OF DOLLARS
<S> <C> <C> <C>
Net sales:
Domestic $3,218,935 $3,124,155 $3,080,329
Foreign 471,732 482,116 407,920
---------- ---------- ----------
Total $3,690,667 $3,606,271 $3,488,249
========== ========== ==========
Income (loss) before interest, income taxes
and accounting changes:
Domestic $ 499,161 $ 446,585 $ 446,565
Foreign 11,625 (78,090) 10,663
Gain on sale of investment interest -- -- 80,642
---------- ---------- ----------
Total $ 510,786 $ 368,495 $ 537,870
========== ========== ==========
Identifiable assets as of December 31:
Domestic $2,336,078 $2,338,184 $2,281,766
Foreign 494,545 552,797 573,325
---------- ---------- ----------
Total $2,830,623 $2,890,981 $2,855,091
========== ========== ==========
</TABLE>
18. QUARTERLY DATA (UNAUDITED)
Summary quarterly results were as follows:
<TABLE>
<CAPTION>
YEAR 1995 FIRST SECOND THIRD FOURTH
- -----------------------------------------------------------------
IN THOUSANDS EXCEPT PER
SHARE AMOUNTS
<S> <C> <C> <C> <C>
Net sales $867,446 $722,269 $981,101 $1,119,851
Gross profit 364,085 298,506 408,658 493,144
Net income 60,633 33,323 82,127 105,836(a)
Net income per share(b) .70 .38 1.02 1.37
<CAPTION>
YEAR 1994 FIRST SECOND THIRD FOURTH
- -----------------------------------------------------------------
IN THOUSANDS EXCEPT PER
SHARE AMOUNTS
<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(c)
Net income per share .61 .29 .93 .29
</TABLE>
- --------
(a) Net income for the fourth quarter and year 1995 included a net after-tax
credit of $2.0 million associated with adjustments to accrued restructuring
reserves. Net income per share was similarly impacted.
(b) Quarterly income per share amounts for 1995 do not total to the annual
amount due to the changes in weighted average shares outstanding during the
year.
(c) 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.
A-26
<PAGE>
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 24, 1995. 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.
A-27
<PAGE>
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,
1995 and 1994, and the related consolidated statements of income,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1995, appearing on pages A-9 through A-26. 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, 1995 and 1994, and the results of their
operations and cash flows for each of the three years in the period ended
December 31, 1995 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
New York, New York
January 25, 1996
A-28
<PAGE>
HERSHEY FOODS CORPORATION
ELEVEN-YEAR CONSOLIDATED FINANCIAL SUMMARY
ALL DOLLAR AND SHARE AMOUNTS IN THOUSANDS EXCEPT
MARKET PRICE AND PER SHARE STATISTICS
<TABLE>
<CAPTION>
10-YEAR
COMPOUND
GROWTH RATE 1995 1994 1993
----------- ---------- ------------- -------------
<S> <C> <C> <C> <C>
SUMMARY OF
OPERATIONS(a)
Net Sales 9.2% $3,690,667 3,606,271 3,488,249
---------- ------------- -------------
Cost of Sales 8.0% $2,126,274 2,097,556 1,995,502
Selling, Marketing and
Administrative 11.8% $1,053,758 1,034,115 1,035,519
Restructuring Credit,
(Charge) and Gain,
Net $ 151 (106,105) --
Gain on Sale of
Investment Interest $ -- -- 80,642
Interest Expense, Net 15.9% $ 44,833 35,357 26,995
Income Taxes 7.2% $ 184,034 148,919 213,642
---------- ------------- -------------
Income from Continuing
Operations Before
Accounting Changes 11.3% $ 281,919 184,219 297,233
Net Cumulative Effect
of Accounting Changes $ -- -- (103,908)
Discontinued
Operations $ -- -- --
---------- ------------- -------------
Net Income 9.6% $ 281,919 184,219 193,325
========== ============= =============
Income Per Share:
From Continuing
Operations Before
Accounting
Changes(b) 12.7% $ 3.40(g) 2.12(h) 3.31(i)
Net Cumulative Effect
of Accounting Changes $ -- -- (1.16)
Net Income(b) 11.1% $ 3.40(g) 2.12(h) 2.15(i)
Weighted Average
Shares Outstanding(b) 82,844 87,019 89,757
Dividends Paid on
Common Stock 9.3% $ 91,190 89,660 84,711
Per Share(b) 11.2% $ 1.370 1.250 1.140
Dividends Paid on
Class B Common Stock 11.2% $ 18,900 17,301 15,788
Per Share(b) 11.2% $ 1.240 1.135 1.035
Income from Continuing
Operations Before
Accounting Changes as
a Percent of Net
Sales 7.6% 7.3%(c) 7.4%(d)
Depreciation 15.5% $ 119,438 114,821 100,124
Advertising 7.5% $ 159,200 120,629 130,009
Promotion 14.3% $ 402,454 419,164 444,546
Payroll 7.6% $ 461,928 472,997 469,564
YEAR-END POSITION AND
STATISTICS(a)
Capital Additions 8.6% $ 140,626 138,711 211,621
Total Assets 9.8% $2,830,623 2,890,981 2,855,091
Long-term Portion of
Debt 15.2% $ 357,034 157,227 165,757
Stockholders' Equity 4.1% $1,082,959 1,441,100 1,412,344
Net Book Value Per
Share(b) 6.1% $ 14.02 16.61 16.12
Operating Return on
Average Stockholders'
Equity 22.2% 18.5% 17.8%
Operating Return on
Average Invested
Capital 17.1% 15.6% 15.0%
Full-time Employees 13,300 14,000 14,300
STOCKHOLDERS' DATA
Outstanding Shares of
Common Stock and
Class B Common Stock
at Year-end(b) 77,266 86,735 87,613
Market Price of Common
Stock at Year-end(b) 14.3% $ 65 48 3/8 49
Range During Year(b) $67 7/8-48 53 1/2-41 1/8 55 7/8-43 1/2
</TABLE>
- --------
See Notes to the Eleven-Year Consolidated Financial Summary on page A-31.
A-29
<PAGE>
<TABLE>
<CAPTION>
1992 1991 1990 1989 1988 1987
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
SUMMARY OF
OPERATIONS(a)
Net Sales 3,219,805 2,899,165 2,715,609 2,420,988 2,168,048 1,863,816
------------ ------------ ------------ ------------ ------------ ------------
Cost of Sales 1,833,388 1,694,404 1,588,360 1,455,612 1,326,458 1,149,663
Selling, Marketing and
Administrative 958,189 814,459 776,668 655,040 575,515 468,062
Restructuring Credit,
(Charge) and Gain,
Net -- -- 35,540 -- -- --
Gain on Sale of
Investment Interest -- -- -- -- -- --
Interest Expense, Net 27,240 26,845 24,603 20,414 29,954 22,413
Income Taxes 158,390 143,929 145,636 118,868 91,615 99,604
------------- ------------- ------------- ------------- ------------- -------------
Income from Continuing
Operations Before
Accounting Changes 242,598 219,528 215,882 171,054 144,506 124,074
Net Cumulative Effect
of Accounting Changes -- -- -- -- -- --
Discontinued
Operations -- -- -- -- 69,443 24,097
------------- ------------- ------------- ------------- ------------- -------------
Net Income 242,598 219,528 215,882 171,054 213,949 148,171
============= ============= ============= ============= ============= =============
Income Per Share:
From Continuing
Operations Before
Accounting
Changes(b) 2.69 2.43 2.39(j) 1.90 1.60 1.38
Net Cumulative Effect
of Accounting Changes -- -- -- -- -- --
Net Income(b) 2.69 2.43 2.39(j) 1.90 2.37 1.64
Weighted Average
Shares Outstanding(b) 90,186 90,186 90,186 90,186 90,186 90,186
Dividends Paid on
Common Stock 77,174 70,426 74,161(e) 55,431 49,433 43,436
Per Share(b) 1.030 .940 .990(e) .740 .660 .580
Dividends Paid on
Class B Common Stock 14,270 12,975 13,596(e) 10,161 9,097 8,031
Per Share(b) .935 .850 .890(e) .665 .595 .525
Income from Continuing
Operations Before
Accounting Changes as
a Percent of Net
Sales 7.5% 7.6% 7.2%(f) 7.1% 6.7% 6.7%
Depreciation 84,434 72,735 61,725 54,543 43,721 35,397
Advertising 137,631 117,049 146,297 121,182 99,082 97,033
Promotion 398,577 325,465 315,242 256,237 230,187 171,162
Payroll 433,162 398,661 372,780 340,129 298,483 263,529
YEAR-END POSITION AND
STATISTICS(a)
Capital Additions 249,795 226,071 179,408 162,032 101,682 68,504
Total Assets 2,672,909 2,341,822 2,078,828 1,814,101 1,764,665 1,544,354
Long-term Portion of
Debt 174,273 282,933 273,442 216,108 233,025 280,900
Stockholders' Equity 1,465,279 1,335,251 1,243,537 1,117,050 1,005,866 832,410
Net Book Value Per
Share(b) 16.25 14.81 13.79 12.39 11.15 9.23
Operating Return on
Average Stockholders'
Equity 17.3% 17.0% 16.6% 16.1% 17.5% 19.0%
Operating Return on
Average Invested
Capital 14.4% 13.8% 13.4% 13.2% 13.3% 13.5%
Full-time Employees 13,700 14,000 12,700 11,800 12,100 10,540
STOCKHOLDERS' DATA
Outstanding Shares of
Common Stock and
Class B Common Stock
at Year-end(b) 90,186 90,186 90,186 90,186 90,186 90,186
Market Price of Common
Stock at Year-end(b) 47 44 3/8 37 1/2 35 7/8 26 24 1/2
Range During Year(b) 48 3/8-38 1/4 44 1/2-35 1/8 39 5/8-28 1/4 36 7/8-24 3/4 28 5/8-21 7/8 37 3/4-20 3/4
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
1986 1985
---------- ----------
<S> <C> <C>
SUMMARY OF
OPERATIONS(a)
Net Sales 1,635,486 1,526,584
---------- ----------
Cost of Sales 1,032,061 982,370
Selling, Marketing and
Administrative 387,227 345,299
Restructuring Credit,
(Charge) and Gain,
Net -- --
Gain on Sale of
Investment Interest -- --
Interest Expense, Net 8,061 10,240
Income Taxes 100,931 91,910
---------- -----------
Income from Continuing
Operations Before
Accounting Changes 107,206 96,765
Net Cumulative Effect
of Accounting Changes -- --
Discontinued
Operations 25,558 15,462
--------- -----------
Net Income 132,764 112,227
========= ===========
Income Per Share:
From Continuing
Operations Before
Accounting
Changes(b) 1.15 1.03
Net Cumulative Effect
of Accounting Changes -- --
Net Income(b) 1.42 1.19
Weighted Average
Shares Outstanding(b) 93,508 94,011
Dividends Paid on
Common Stock 40,930 37,386
Per Share(b) .520 .475
Dividends Paid on
Class B Common Stock 7,216 6,556
Per Share(b) .472 .428
Income from Continuing
Operations Before
Accounting Changes as
a Percent of Net
Sales 6.6% 6.3%
Depreciation 31,254 28,348
Advertising 83,600 77,135
Promotion 122,508 105,401
Payroll 238,742 222,267
YEAR-END POSITION AND
STATISTICS(a)
Capital Additions 74,452 61,361
Total Assets 1,262,332 1,116,074
Long-term Portion of
Debt 185,676 86,986
Stockholders' Equity 727,941 727,899
Net Book Value Per
Share(b) 8.07 7.74
Operating Return on
Average Stockholders'
Equity 18.2% 17.2%
Operating Return on
Average Invested
Capital 13.5% 13.5%
Full-time Employees 10,210 10,380
STOCKHOLDERS' DATA
Outstanding Shares of
Common Stock and
Class B Common Stock
at Year-end(b) 90,186 94,011
Market Price of Common
Stock at Year-end(b) 24 5/8 17 1/8
Range During Year(b) 30-15 1/2 18 3/8-11 5/8
</TABLE>
- --------
A-30
<PAGE>
NOTES TO THE ELEVEN-YEAR CONSOLIDATED FINANCIAL SUMMARY
(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), the 1994 Restructuring Charge and the net 1995
Restructuring Credit.
(b) All shares and per share amounts have been adjusted for the three-for-one
stock split effective September 15, 1986.
(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 1995 included a net $.02 per share credit
associated with adjustments to accrued restructuring reserves. Excluding
the impact of this net credit, Income Per Share from Continuing Operations
Before Accounting Changes and Net Income Per Share would have been $3.38.
(h) 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.
(i) 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.
(j) 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.
A-31
<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, 1995.
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>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM HERSHEY
FOODS CORPORATION'S CONSOLIDATED CONDENSED BALANCE SHEET AS OF DECEMBER 31,
1995 AND CONDOLIDATED STATEMENT OF INCOME FOR THE TWELVE MONTHS ENDED DECEMBER
31, 1995 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-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 32,346
<SECURITIES> 0
<RECEIVABLES> 326,024<F1>
<ALLOWANCES> 0
<INVENTORY> 397,570
<CURRENT-ASSETS> 922,323
<PP&E> 2,190,386
<DEPRECIATION> 754,377
<TOTAL-ASSETS> 2,830,623
<CURRENT-LIABILITIES> 864,355
<BONDS> 357,034
0
0
<COMMON> 89,975
<OTHER-SE> 992,984
<TOTAL-LIABILITY-AND-EQUITY> 2,830,623
<SALES> 3,690,667
<TOTAL-REVENUES> 3,690,667
<CGS> 2,126,274
<TOTAL-COSTS> 3,180,032
<OTHER-EXPENSES> 151<F2>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 44,833
<INCOME-PRETAX> 465,953
<INCOME-TAX> 184,034
<INCOME-CONTINUING> 281,919
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 281,919
<EPS-PRIMARY> 3.40
<EPS-DILUTED> 0
<FN>
<F1>BALANCE IS NET OF RESERVES FOR DOUBTFUL ACCOUNTS AND CASH DISCOUNTS.
<F2>RELATES TO A PRE-TAX RESTRUCTURING CHARGE OF $16.6 MILLION RELATED
TO A VOLUNTARY RETIREMENT PROGRAM OFFSET BY A $16.7 MILLION REVERSAL OF
1994 ACCRUED RESTRUCTURING RESERVES.
</FN>
</TABLE>
