UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended JULY 5, 1998
----------------------------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 1-183
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HERSHEY FOODS CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 23-0691590
-------------------------------- ------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
100 CRYSTAL A DRIVE
HERSHEY, PENNSYLVANIA 17033
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (717) 534-6799
----------------------------
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
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 the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Common Stock, $1 par value - 112,661,777 shares, as of August 3, 1998. Class B
Common Stock, $1 par value - 30,453,908 shares, as of August 3, 1998.
Exhibit Index - Page 17
<PAGE>
<TABLE>
<CAPTION>
HERSHEY FOODS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
FOR THE THREE MONTHS ENDED
--------------------------
JULY 5, JUNE 29,
1998 1997
----------- -----------
<S> <C> <C>
NET SALES $ 880,399 $ 905,729
----------- -----------
COSTS AND EXPENSES:
Cost of sales 522,715 530,318
Selling, marketing and administrative 258,309 276,260
----------- -----------
Total costs and expenses 780,024 806,578
----------- -----------
INCOME BEFORE INTEREST AND INCOME TAXES 99,375 99,151
Interest expense, net 20,744 15,851
----------- -----------
INCOME BEFORE INCOME TAXES 78,631 83,300
Provision for income taxes 30,666 32,736
----------- -----------
NET INCOME $ 47,965 $ 50,564
=========== ===========
NET INCOME PER SHARE - BASIC $ .33 $ .33
=========== ===========
NET INCOME PER SHARE - DILUTED $ .33 $ .33
=========== ===========
AVERAGE SHARES OUTSTANDING - BASIC 143,510 153,114
=========== ===========
AVERAGE SHARES OUTSTANDING - DILUTED 145,752 155,064
=========== ===========
CASH DIVIDENDS PAID PER SHARE:
Common Stock $ .22 $ .20
=========== ===========
Class B Common Stock $ .20 $ .18
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
<TABLE>
<CAPTION>
HERSHEY FOODS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
FOR THE SIX MONTHS ENDED
------------------------
JULY 5, JUNE 29,
1998 1997
----------- ----------
<S> <C> <C>
NET SALES $ 1,978,475 $ 1,908,198
----------- -----------
COSTS AND EXPENSES:
Cost of sales 1,175,055 1,119,600
Selling, marketing and administrative 557,679 560,264
----------- -----------
Total costs and expenses 1,732,734 1,679,864
----------- -----------
INCOME BEFORE INTEREST AND INCOME TAXES 245,741 228,334
Interest expense, net 43,450 31,533
----------- -----------
INCOME BEFORE INCOME TAXES 202,291 196,801
Provision for income taxes 78,893 77,343
----------- -----------
NET INCOME $ 123,398 $ 119,458
=========== ===========
NET INCOME PER SHARE - BASIC $ .86 $ .78
=========== ===========
NET INCOME PER SHARE - DILUTED $ .85 $ .77
=========== ===========
AVERAGE SHARES OUTSTANDING - BASIC 143,441 153,139
=========== ===========
AVERAGE SHARES OUTSTANDING - DILUTED 145,612 154,892
=========== ===========
CASH DIVIDENDS PAID PER SHARE:
Common Stock $ .44 $ .40
=========== ===========
Class B Common Stock $ .40 $ .36
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
<TABLE>
<CAPTION>
HERSHEY FOODS CORPORATION
CONSOLIDATED BALANCE SHEETS
JULY 5, 1998 AND DECEMBER 31, 1997
(IN THOUSANDS OF DOLLARS)
ASSETS 1998 1997
----------- -----------
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 33,631 $ 54,237
Accounts receivable - trade 230,442 360,831
Inventories 623,578 505,525
Deferred income taxes 86,168 84,024
Prepaid expenses and other 51,818 30,197
----------- -----------
Total current assets 1,025,637 1,034,814
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PROPERTY, PLANT AND EQUIPMENT, AT COST 2,649,001 2,587,230
Less - accumulated depreciation and amortization (1,002,376) (938,993)
----------- -----------
Net property, plant and equipment 1,646,625 1,648,237
----------- -----------
INTANGIBLES RESULTING FROM BUSINESS ACQUISITIONS 541,197 551,849
OTHER ASSETS 73,535 56,336
----------- -----------
Total assets $ 3,286,994 $ 3,291,236
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 100,746 $ 146,932
Accrued liabilities 292,510 371,545
Accrued income taxes 41,007 19,692
Short-term debt 286,799 232,451
Current portion of long-term debt 100 25,095
----------- -----------
Total current liabilities 721,162 795,715
LONG-TERM DEBT 1,029,121 1,029,136
OTHER LONG-TERM LIABILITIES 353,871 346,500
DEFERRED INCOME TAXES 271,281 267,079
----------- -----------
Total liabilities 2,375,435 2,438,430
----------- -----------
STOCKHOLDERS' EQUITY:
Preferred Stock, shares issued:
none in 1998 and 1997 --- ---
Common Stock, shares issued:
149,496,964 in 1998 and 149,484,964 in 1997 149,497 149,485
Class B Common Stock, shares issued:
30,453,908 in 1998 and 30,465,908 in 1997 30,453 30,465
Additional paid-in capital 28,421 33,852
Unearned ESOP compensation (27,144) (28,741)
Retained earnings 2,039,507 1,977,849
Treasury-Common Stock shares at cost:
36,766,362 in 1998 and 37,018,566 in 1997 (1,259,141) (1,267,861)
Accumulated other comprehensive income (50,034) (42,243)
----------- -----------
Total stockholders' equity 911,559 852,806
----------- -----------
Total liabilities and stockholders' equity $ 3,286,994 $ 3,291,236
=========== ===========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
<PAGE>
<TABLE>
<CAPTION>
HERSHEY FOODS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
FOR THE SIX MONTHS ENDED
------------------------
JULY 5, JUNE 29,
1998 1997
----------- ----------
CASH FLOWS PROVIDED FROM (USED BY) OPERATING ACTIVITIES
<S> <C> <C>
Net Income $ 123,398 $ 119,458
Adjustments to Reconcile Net Income to Net Cash
Provided from Operations:
Depreciation and amortization 77,162 76,397
Deferred income taxes 2,058 7,349
Changes in assets and liabilities, net of effects from business
acquisitions and divestitures:
Accounts receivable - trade 130,389 78,322
Inventories (118,053) (194,901)
Accounts payable (46,186) 11,307
Other assets and liabilities (59,224) 27,294
Other, net --- 2,145
--------- ---------
Net Cash Flows Provided from Operating Activities 109,544 127,371
--------- ---------
CASH FLOWS PROVIDED FROM (USED BY) INVESTING ACTIVITIES
Capital additions (77,822) (85,365)
Capitalized software additions (20,164) ---
Other, net 8,933 10,749
--------- ---------
Net Cash Flows (Used by) Investing Activities (89,053) (74,616)
--------- ---------
CASH FLOWS PROVIDED FROM (USED BY) FINANCING ACTIVITIES
Net increase (decrease) in short-term debt 54,348 (154,396)
Long-term borrowings --- 150,000
Repayment of long-term debt (25,096) (93)
Cash dividends paid (61,740) (59,897)
Exercise of stock options 13,849 8,879
Incentive plan transactions (22,458) (24,577)
Repurchase of Common Stock --- (7,654)
--------- ---------
Net Cash Flows (Used by) Financing Activities (41,097) (87,738)
--------- ---------
(Decrease) in Cash and Cash Equivalents (20,606) (34,983)
Cash and Cash Equivalents, beginning of period 54,237 61,422
--------- ---------
Cash and Cash Equivalents, end of period $ 33,631 $ 26,439
========= =========
Interest Paid $ 43,787 $ 29,109
========= =========
Income Taxes Paid $ 40,685 $ 84,050
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
<TABLE>
<CAPTION>
HERSHEY FOODS CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
ACCUMULATED
CLASS B ADDITIONAL UNEARNED TREASURY OTHER TOTAL
PREFERRED COMMON COMMON PAID-IN ESOP RETAINED COMMON OMPREHENSIVE STOCKHOLDERS'
STOCK STOCK STOCK CAPITAL COMPENSATION EARNINGS STOCK INCOME EQUITY
- ----------------------------------------------------------------------------------------------------------------------------------
IN THOUSANDS OF DOLLARS
BALANCE AS OF
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
DECEMBER 31, 1997 $ --- $149,485 $30,465 $33,852 $(28,741) $1,977,849 $(1,267,861) $(42,243) $852,806
--------
Comprehensive income
Net income 75,433 75,433
Other comprehensive
income:
Foreign currency
translation
adjustments (575) (575)
--------
Comprehensive income 74,858
--------
Dividends:
Common Stock, $.22
per share (24,769) (24,769)
Class B Common Stock,
$.20 per share (6,091) (6,091)
Conversion of Class B
Common Stock
into Common Stock 12 (12) ---
Incentive plan
transactions (1,033) (1,033)
Exercise of stock
options (5,902) 14,265 8,363
Employee stock
ownership trust
transactions 129 798 927
----- -------- -------- ------ ------- ----------- ---------- ------- -------
BALANCE AS OF
APRIL 5, 1998 --- 149,497 30,453 27,046 (27,943) 2,022,422 (1,253,596) (42,818) 905,061
Comprehensive income
Net income 47,965 47,965
Other comprehensive
income:
Foreign currency
translation
adjustments (7,216) (7,216)
--------
Comprehensive income 40,749
--------
Dividends:
Common Stock, $.22
per share (24,789) (24,789)
Class B Common Stock,
$.20 per share (6,091) (6,091)
Exercise of stock
options 1,250 (5,545) (4,295)
Employee stock
ownership trust
transactions 125 799 924
----- -------- ------- ------- -------- ---------- ----------- -------- --------
BALANCE AS OF
JULY 5, 1998 $ --- $149,497 $30,453 $28,421 $(27,144) $2,039,507 $(1,259,141) $(50,034) $911,559
===== ======== ======= ======= ======== ========== =========== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements include the
accounts of the Corporation and its subsidiaries after elimination of
intercompany accounts and transactions. These statements have been
prepared in accordance with the instructions to Form 10-Q and do not
include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting only of normal
recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three months and year-to-date
ended July 5, 1998, are not necessarily indicative of the results that
may be expected for the year ending December 31, 1998. For more
information, refer to the consolidated financial statements and
footnotes included in the Corporation's 1997 Annual Report on Form 10-K.
2. COMPREHENSIVE INCOME
In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" (FAS No. 130). Under FAS No. 130, standards
are established for reporting and display of comprehensive income
and its components in financial statements. Comprehensive income is
reported in the Consolidated Statements of Stockholder's Equity.
Other Comprehensive income represents foreign currency translation
adjustments.
3. INTEREST EXPENSE
Interest expense, net consisted of the following:
FOR THE SIX MONTHS ENDED
------------------------
JULY 5, 1998 JUNE 29, 1997
------------ -------------
(IN THOUSANDS OF DOLLARS)
Interest expense $ 46,332 $ 33,619
Interest income (1,738) (1,644)
Capitalized interest (1,144) (442)
--------- ---------
Interest expense, net $ 43,450 $ 31,533
========= =========
<PAGE>
4. NET INCOME PER SHARE
A total of 36,766,362 shares were held as Treasury Stock as of
July 5, 1998.
In accordance with Financial Accounting Standards No. 128 "Earnings Per
Share", Basic and Diluted Earnings per Share are computed based on the
weighted average number of shares of the Common Stock and the Class B
Stock outstanding as follows:
<TABLE>
<CAPTION>
INCOME SHARES PER-SHARE
FOR THE THREE MONTHS ENDED JULY 5, 1998 (NUMERATOR) (DENOMINATOR) AMOUNT
- ---------------------------------------------------------------------------------------------
In thousands of dollars except shares and
per share amounts
NET INCOME PER SHARE - BASIC
- ----------------------------
<S> <C> <C> <C>
Net income $ 47,965 143,509,698 $.33
====
EFFECT OF DILUTIVE SECURITIES
- -----------------------------
Stock options - 2,162,813
Performance stock units - 72,928
Restricted stock units - 6,747
-------- ------------
NET INCOME PER SHARE - DILUTED
- ------------------------------
Net income and assumed conversions $ 47,965 145,752,186 $.33
======== ============ ====
INCOME SHARES PER-SHARE
FOR THE THREE MONTHS ENDED JUNE 29, 1997 (NUMERATOR) (DENOMINATOR) AMOUNT
- ---------------------------------------------------------------------------------------------
In thousands of dollars except shares and
per share amounts
NET INCOME PER SHARE - BASIC
- ----------------------------
Net income $ 50,564 153,113,903 $.33
====
EFFECT OF DILUTIVE SECURITIES
- -----------------------------
Stock options - 1,851,438
Performance stock units - 94,392
Restricted stock units - 3,786
--------- ------------
NET INCOME PER SHARE - DILUTED
- ------------------------------
Net income and assumed conversions $ 50,564 155,063,519 $.33
========= ============ ====
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
INCOME SHARES PER-SHARE
FOR THE SIX MONTHS ENDED JULY 5, 1998 (NUMERATOR) (DENOMINATOR) AMOUNT
- ---------------------------------------------------------------------------------------------
In thousands of dollars except shares and
per share amounts
NET INCOME PER SHARE - BASIC
- ----------------------------
<S> <C> <C> <C>
Net income $ 123,398 143,441,165 $.86
====
EFFECT OF DILUTIVE SECURITIES
- -----------------------------
Stock options - 2,092,179
Performance stock units - 72,366
Restricted stock units - 6,694
----------- -----------
NET INCOME PER SHARE - DILUTED
- ------------------------------
Net income and assumed conversions $ 123,398 145,612,404 $.85
========== ============ ====
INCOME SHARES PER-SHARE
FOR THE SIX MONTHS ENDED JUNE 29, 1997 (NUMERATOR) (DENOMINATOR) AMOUNT
- ---------------------------------------------------------------------------------------------
In thousands of dollars except shares and per share amounts
NET INCOME PER SHARE - BASIC
- ----------------------------
Net income $ 119,458 153,139,428 $.78
====
EFFECT OF DILUTIVE SECURITIES
- -----------------------------
Stock options - 1,656,928
Performance stock units - 92,685
Restricted stock units - 3,435
---------- ------------
NET INCOME PER SHARE - DILUTED
- ------------------------------
Net income and assumed conversions $ 119,458 154,892,476 $.77
========== ============ ====
</TABLE>
5. INVENTORIES
The majority of inventories are valued under the last-in, first-out
(LIFO) method. The remaining inventories are stated at the lower of
first-in, first-out (FIFO) cost or market. Inventories were as follows:
JULY 5, 1998 DECEMBER 31, 1997
------------ -----------------
(IN THOUSANDS OF DOLLARS)
Raw materials $ 251,340 $ 223,702
Goods in process 45,727 36,015
Finished goods 439,133 334,639
---------- ---------
Inventories at FIFO 736,200 594,356
Adjustment to LIFO (112,622) (88,831)
---------- ----------
Total inventories $ 623,578 $ 505,525
========== ==========
<PAGE>
6. LONG-TERM DEBT
In March 1997, the Corporation issued $150 million of 6.95% Notes due
2007 (6.95% Notes) under the November 1993 Form S-3 Registration
Statement. Proceeds from the debt issuance were used to repay a portion
of the commercial paper borrowings associated with the acquisition of
the Leaf North America confectionery operations (Leaf) in December 1996.
In August 1997, the Corporation filed another Form S-3 Registration
Statement under which it could offer, on a delayed or continuous basis,
up to $500 million of additional debt securities. Also in August 1997,
the Corporation issued $150 million of 6.95% Notes due 2012 (Notes) and
$250 million of 7.2% Debentures due 2027 (Debentures) under the November
1993 and August 1997 Registration Statements. Proceeds from the debt
issuance were used to repay short-term borrowings associated with the
purchase of Common Stock from the Hershey Trust Company, as Trustee for
the benefit of Milton Hershey School (Milton Hershey School Trust). As
of July 5, 1998, $250 million of debt securities remained available for
issuance under the August 1997 Registration Statement. As of July 5,
1998 and December 31, 1997, $150.0 million of commercial paper
borrowings were reclassified as long-term debt in accordance with the
Corporation's intent and ability to refinance such obligations on a
long-term basis.
7. FINANCIAL INSTRUMENTS
The carrying amounts of financial instruments including cash and cash
equivalents, accounts receivable, accounts payable and short-term debt,
including $150.0 million of commercial paper borrowings reclassified as
long-term debt, approximated fair value as of July 5, 1998 and December
31, 1997, because of the relatively short maturity of these instruments.
The carrying value of long-term debt, including the current portion, was
$879.2 million as of July 5, 1998, compared to a fair value of $958.8
million, based on quoted market prices for the same or similar debt
issues.
As of July 5, 1998, the Corporation had foreign exchange forward
contracts maturing in 1998 and 1999 to purchase $18.3 million in foreign
currency, primarily British sterling and Swiss francs, and to sell $11.6
million in foreign currency, primarily Japanese yen and Canadian
dollars, 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, from time to
time, 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. As of July 5, 1998,
the Corporation had purchased foreign exchange options of $4.1 million
and written foreign exchange options of $3.9 million, related to German
marks. No options were outstanding as of June 29, 1997.
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. The fair value of foreign exchange
<PAGE>
options is estimated using active market quotations. As of July 5, 1998,
the fair value of foreign exchange forward and options contracts
approximated the contract value. The Corporation does not hold or issue
financial instruments for trading purposes.
In order to minimize its financing costs and to manage interest rate
exposure, the Corporation, from time to time, enters into interest rate
swap agreements to effectively convert a portion of its floating rate
debt to fixed rate debt. As of July 5, 1998, the Corporation had
agreements outstanding with an aggregate notional amount of $150.0
million, with maturities through 1999. As of July 5, 1998, interest
rates payable were at a weighted average fixed rate of 6.3%, and the
interest rate receivable was floating based on the 30-day commercial
paper composite rate which was 5.5% as of July 5, 1998. Any interest
rate differential on interest rate swaps is recognized as an adjustment
to interest expense over the term of each agreement. The Corporation's
risk related to swap agreements is limited to the cost of replacing such
agreements at prevailing market rates.
8. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES (FAS No. 133). FAS No. 133
establishes accounting and reporting standards requiring that every
derivative instrument be recorded in the balance sheet as either an
asset or liability measured at its fair value. FAS No. 133 requires that
changes in the derivative's fair value be recognized currently in
earnings unless specific hedge accounting criteria are met. Special
accounting for qualifying hedges allows a derivative's gains and losses
to offset related results on the hedged item in the income statement,
and requires that a company must formally document, designate, and
assess the effectiveness of transactions that receive hedge accounting.
FAS No. 133 is effective for fiscal years beginning after June 15, 1999,
but may be implemented as of the beginning of any fiscal quarter after
issuance. Retroactive application is not permitted. FAS No. 133 must be
applied to (a) derivative instruments and (b) certain derivative
instruments embedded in hybrid contracts that were issued, acquired, or
substantively modified after December 31, 1997. Changes in accounting
methods will be required for derivative instruments utilized by the
Corporation to hedge commodity price, foreign currency exchange rate and
interest rate risks. Such derivatives include, but are not limited to,
commodity futures and options contracts, foreign exchange forward and
options contracts and interest rate swaps.
The Corporation has not yet quantified the impacts of adopting FAS No.
133 on its financial statements and has not determined the timing of
or method of adoption. However, the implementation of FAS No. 133 could
increase volatility in earnings and other comprehensive income.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS - SECOND QUARTER 1998 VS. SECOND QUARTER 1997
- -------------------------------------------------------------------
Consolidated net sales for the second quarter fell from $905.7 million in 1997
to $880.4 million in 1998, a decrease of 3% from the prior year. The lower sales
primarily reflected lower sales related to the promotional tie-in with the movie
GODZILLA as compared to last year's highly successful LOST WORLD promotion,
continued softness in the Corporation's Asian and Russian markets and a higher
level of unsalables. These decreases were offset somewhat by incremental sales
from the introduction of new confectionery products.
The consolidated gross margin decreased from 41.4% in 1997 to 40.6% in 1998. The
decrease reflected the cost of realigning our Russian business, lower
profitability resulting from the mix of non-chocolate and chocolate
confectionery items sold in the second quarter of 1998 compared to sales in the
second quarter of 1997, and increased production and distribution costs for
certain products sold under special promotions and for seasonal items. These
higher costs were partially offset by lower costs for raw materials and
packaging and improved manufacturing efficiencies. Selling, marketing and
administrative expenses decreased by 6%, primarily reflecting lower marketing
expenses for existing products, offset somewhat by increased spending associated
with the introduction of new products.
Net interest expense in the second quarter of 1998 was $4.9 million above the
comparable period of 1997 primarily as a result of increased borrowings
associated with the purchase of Common Stock from the Milton Hershey School
Trust.
The second quarter effective income tax rate decreased from 39.3% in 1997
to 39.0% in 1998 primarily due to changes in the mix of the
Corporation's income among various tax jurisdictions.
RESULTS OF OPERATIONS - FIRST SIX MONTHS 1998 VS. FIRST SIX MONTHS 1997
- -----------------------------------------------------------------------
Consolidated net sales for the first six months of 1998 increased by $70.3
million or 4% primarily as a result of incremental sales from the introduction
of new confectionery products, increased sales of core confectionery items and
higher sales of grocery and pasta products. These increases were offset somewhat
by a decline in sales in the Corporation's Asian and Russian markets and a
higher level of unsalables.
The consolidated gross margin decreased from 41.3% in 1997 to 40.6% in 1998. The
decrease was primarily due to lower profitability resulting from the mix of
non-chocolate and chocolate confectionery items sold in 1998 compared to sales
in 1997, the cost of realigning our Russian business, and higher costs for
certain major raw materials, primarily milk and cocoa, labor and overhead. These
cost increases were partially offset by improved manufacturing efficiencies
associated primarily with production of the acquired Leaf brands. Selling,
marketing and administrative expenses were slightly less than 1997, as higher
marketing expenses associated with the introduction of new products were offset
by lower spending for existing brands.
<PAGE>
Net interest expense was $11.9 million above prior year, primarily as a result
of increased borrowings associated with the purchase of Common Stock from the
Milton Hershey School Trust.
The effective income tax rate decreased from 39.3% in 1997 to 39.0% in 1998
primarily due to changes in the mix of the Corporation's income among various
tax jurisdictions.
FINANCIAL CONDITION
Historically, the Corporation's major source of financing has been cash
generated from operations. Domestic seasonal working capital needs, which
typically peak during the summer, generally have been met by issuing commercial
paper. During the first six months of 1998, the Corporation's cash and cash
equivalents decreased by $20.6 million. Cash and cash equivalents on hand at the
beginning of the period, cash provided from operations and short-term borrowings
were sufficient to finance capital and capitalized software additions of $98.0
million, pay cash dividends of $61.7 million and to repay $25.1 million of
long-term debt.
The ratio of current assets to current liabilities was 1.4:1 as of July 5, 1998,
and 1.3:1 as of December 31, 1997. The Corporation's capitalization ratio (total
short-term and long-term debt as a percent of stockholders' equity, short-term
and long-term debt) was 59% as of July 5, 1998, and 60% as of December 31, 1997.
As of July 5, 1998, the Corporation maintained committed credit facility
agreements with a syndicate of banks in the amount of $600 million which could
be borrowed directly or used to support the issuance of commercial paper. The
Corporation has options to increase the credit facility by $1.0 billion with the
concurrence of the banks. As of July 5, 1998, and June 29, 1997, the Corporation
also had lines of credit with domestic and international commercial banks in the
amount of approximately $20 million.
In March 1997, the Corporation issued $150 million of 6.95% Notes under a
November 1993 Registration Statement. In August 1997, the Corporation issued
$150 million of Notes and $250 million of Debentures under the November 1993 and
August 1997 Registration Statements. As of July 5, 1998, $250 million of debt
securities remained available for issuance under the August 1997 Registration
Statement. Proceeds from any offering of the $250 million of debt securities
available under the shelf registration may be used for general corporate
requirements, which include reducing existing commercial paper borrowings,
financing capital additions, and funding future business acquisitions and
working capital requirements.
As of July 5, 1998, the Corporation's principal capital commitments included
manufacturing capacity expansion and modernization. The Corporation anticipates
that capital expenditures will be in the range of $175 million to $200 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.
In late 1996, the Corporation approved a project to implement an enterprise-wide
integrated information system to replace most of the transaction systems and
applications currently supporting operations of the Corporation. Total
<PAGE>
commitments for this system are expected to be in the range of $75 million to
$85 million. The system is Year 2000 compliant.
The Corporation is evaluating its manufacturing processes and remaining
legacy information systems to identify and remediate any Year 2000 compliance
issues. In addition, major business partners and suppliers are being contacted
to gain assurances that they will be Year 2000 compliant. Failure, either by the
Corporation, its major business partners or suppliers, to complete remediation
in a timely manner could result in significant adverse financial consequences to
the Corporation.
At the present time, the total cost to remediate Year 2000 compliance issues is
not expected to be material to the Corporation's business, operations or
financial condition. It is also expected that remediation to both the
Corporation's manufacturing processes and information systems and those of major
business partners or suppliers will be completed in time to prevent any material
adverse consequences to the Corporation's business, operations or financial
condition.
The potential loss in fair value of foreign exchange forward contracts and
interest rate swaps resulting from a hypothetical near-term adverse change in
market rates of ten percent was not material as of July 5, 1998. The market risk
resulting from a hypothetical adverse market price movement of ten percent
associated with the estimated average fair value of net commodity positions
declined from $9.6 million as of December 31, 1997, to $7.5 million as of July
5, 1998. Market risk represents 10% of the estimated average fair value of net
commodity positions at four dates prior to the end of each period. The decrease
in average market risk was primarily related to changes in the excess of futures
contracts held over unpriced physical forward contracts in 1998 compared to
1997.
SAFE HARBOR STATEMENT
The nature of the Corporation's operations and the environment in which it
operates subject it to changing economic, competitive, regulatory and
technological conditions, risks and uncertainties. In connection with the "safe
harbor" provisions of the Private Securities Litigation Reform Act of 1995, the
Corporation notes the following factors which, among others, could cause future
results to differ materially from the forward-looking statements, expectations
and assumptions expressed or implied herein. Forward looking statements
contained in this document include, but are not limited to Year 2000 issues
(particularly with regard to the Corporation's business partners and suppliers),
the impact of the use of derivative instruments, the amount of future capital
expenditures and the possible uses of proceeds from any future borrowings under
the Corporation's currently effective credit facility or August 1997
Registration Statement. Factors which could cause results to differ include, but
are not limited to: changes in the confectionery and pasta business environment,
including actions of competitors and changes in consumer preferences; changes in
governmental laws and regulations, including income taxes; market demand for new
and existing products; and raw material pricing.
<PAGE>
PART II
Items 1 through 5 have been omitted as not applicable.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
- -----------------------------------------
a) EXHIBITS
--------
The following items are attached and incorporated herein by reference:
Exhibit 3 - Restated By-laws of Hershey Foods Corporation as amended and
restated on June 2, 1998.
Exhibit 12 - Statement showing computation of ratio of earnings to fixed
charges for the six months ended July 5, 1998 and June 29, 1997.
Exhibit 27 - Financial Data Schedule for the period ended July 5, 1998
(required for electronic filing only).
b) REPORTS ON FORM 8-K
--------------------
A report on Form 8-K was filed July 10, 1998 announcing that the
Corporation's earnings for the second quarter of 1998 may be below
market expectations.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HERSHEY FOODS CORPORATION
-------------------------
(Registrant)
Date AUGUST 12, 1998 /S/ WILLIAM F. CHRIST
--------------- ------------------------------
William F. Christ
Senior Vice President,
Chief Financial Officer and Treasurer
Date AUGUST 12, 1998 /S/ DAVID W. TACKA
--------------- -----------------------------
David W. Tacka
Corporate Controller and
Chief Accounting Officer
<PAGE>
EXHIBIT INDEX
Exhibit 3 - Amended and Restated By-laws of Hershey Foods Corporation
Exhibit 12 - Computation of Ratio of Earnings to Fixed Charges
Exhibit 27 - Financial Data Schedule for the period ended July 5, 1998
(required for electronic filing only)
EXHIBIT 3
BY-LAWS
OF
HERSHEY FOODS CORPORATION
INCORPORATED OCTOBER 24, 1927
UNDER THE LAWS OF THE
STATE OF DELAWARE
CORPORATE HEADQUARTERS Amended and Restated by the
100 CRYSTAL A DRIVE Board of Directors as of
HERSHEY, PENNSYLVANIA 17033 June 2, 1998
Prior Amendments:
January 31, 1985
February 13, 1985
April 29, 1991
December 3, 1991
April 24, 1995
June 6, 1995
October 3, 1995
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I - STOCKHOLDERS ............................................ 1
Section 1. Annual Meeting ................................... 1
Section 2. Special Meetings ................................. 1
Section 3. Place of Meetings ................................ 1
Section 4. Notice of Meetings ............................... 1
Section 5. Waiver of Notice ................................. 1
Section 6. Quorum and Required Vote.......................... 2
Section 7. Inspectors of Election............................ 2
Section 8. Conduct of Meetings............................... 3
Section 9. Notice of Stockholder Business.................. 3-4
ARTICLE II - STOCK .................................................... 4
Section 1. Stock Certificates ............................... 4
Section 2. Transfer Agents and Registrars ................... 4
Section 3. Transfer of Stock ................................ 4
Section 4. Lost Certificates .............................. 4-5
Section 5. Record Date ...................................... 5
Section 6. Dividends ........................................ 5
ARTICLE III - BOARD OF DIRECTORS ...................................... 5
Section 1. Number and Term of Office......................... 5
Section 2. Director Nominations.............................. 6
Section 3. Organization Meeting ............................. 6
Section 4. Stated Meetings .................................. 6
Section 5. Special Meetings ................................. 7
Section 6. Notice of Meetings ............................... 7
Section 7. Participation by Conference Telephone ............ 7
Section 8. Quorum and Manner of Acting ...................... 7
Section 9. Directors' Fees .................................. 7
Section 10. Signature of Negotiable Instruments .............. 7
Section 11. Fiscal Year ...................................... 7
ARTICLE IV - EXECUTIVE COMMITTEE AND OTHER COMMITTEES ................. 8
Section 1. Executive Committee; Constitution ................ 8
Section 2. Executive Committee; Powers ...................... 8
Section 3. Executive Committee; Meetings, Quorum............
and Manner of Acting ..................... 8
Section 4. Executive Committee; Records ..................... 8
Section 5. Other Committees ................................. 8
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE V - OFFICERS .................................................. 8
Section 1. Officers; Generally .............................. 8
Section 2. Term of Office ................................... 9
Section 3. Removal of Elected Officers ...................... 9
Section 4. Vacancies ........................................ 9
Section 5. Chairman of the Board of Directors ............... 9
Section 6. President ........................................ 9
Section 7. Chief Executive Officer .......................... 9
Section 8. Chief Operating Officer .......................... 9
Section 9. Division Presidents and Vice Presidents............9
Section 10. Secretary ........................................10
Section 11. Treasurer ........................................10
Section 12. Compensation .....................................10
ARTICLE VI - INDEMNIFICATION ..........................................10
Section 1. General........................................10-11
Section 2. Advancement of Expenses...........................11
Section 3. Rights Not Exclusive..............................11
Section 4. Claims............................................11
Section 5. Other Indemnification.............................11
Section 6. Amendment or Repeal...............................11
ARTICLE VII - EMERGENCY CONDITIONS.....................................12
Section 1. Board of Directors................................12
Section 2. Chief Executive Officer...........................12
Section 3. Notice of Meetings................................12
Section 4. Powers During an Emergency Condition..............12
Section 5. Liability.........................................12
Section 6. Effectiveness of Other By-laws....................13
ARTICLE VIII - AMENDMENTS ................................... .........13
CERTIFICATE ...........................................................14
<PAGE>
BY-LAWS
OF
HERSHEY FOODS CORPORATION
ARTICLE I - STOCKHOLDERS
Section 1. ANNUAL MEETING. The annual meeting of stockholders shall be
held for the election of directors at such date, time and place, either within
or without the State of Delaware, as may be designated by resolution of the
Board of Directors from time to time. Any other proper business may be
transacted at the annual meeting.
Section 2. SPECIAL MEETINGS. A special meeting of the stockholders may
be called by the Board of Directors, the Executive Committee of the Board of
Directors or by stockholders holding in the aggregate at least twenty-five
percent of the outstanding votes entitled to be cast by holders of the Common
Stock and the Class B Common Stock voting together without regard to class on
the date such meeting is called.
Section 3. PLACE OF MEETINGS. All meetings of the stockholders shall be
held at such places, within or without the State of Delaware, as may from time
to time be fixed by the Board of Directors, or as shall be specified or fixed in
the respective notices or waivers of notice thereof.
Section 4. NOTICE OF MEETINGS. Notice of each meeting of the
stockholders, whether annual or special, shall be given not less than ten nor
more than sixty days before the date on which the meeting is to be held to each
stockholder of record entitled to vote, by delivering a written or printed
notice thereof to him, personally, or by mailing such notice in a postage
prepaid envelope addressed to him at his post office address registered with the
Corporation. No publication of any notice of a meeting of stockholders shall be
required. Every notice of a special meeting of stockholders, besides stating the
time and place of the meeting, shall state briefly the purpose or purposes for
which the meeting is called.
Section 5. WAIVER OF NOTICE. Regardless of any other provision herein,
notice of any meeting of stockholders shall not be required as to any
stockholder who shall attend such meeting in person or by proxy; and, if any
stockholder shall, in person or by proxy duly authorized, waive notice of any
meeting, whether before or after such meeting, notice thereof shall not be
required as to him.
<PAGE>
Section 6. QUORUM AND REQUIRED VOTE. At any meeting of stockholders at
which any action is to be taken or questions decided (including the election of
directors), the presence in person or by proxy of the holders of a majority of
the votes entitled to be cast at the meeting with respect to such action or
question shall constitute a quorum, provided, however, that at such time as
shares of the Class B Common Stock become outstanding, with respect to the
taking of any action or the deciding of any question as to which either the
Common Stock or the Class B Common Stock is entitled to vote separately as a
class pursuant to the provisions of the Restated Certificate of Incorporation,
the holders of a majority of the votes entitled to be cast by such class voting
separately as a class at such meeting shall constitute a quorum. At every such
meeting at which a quorum is present for the taking of any action or the
deciding of any question, a majority of the votes present or represented shall
be necessary to take such action or decide such question, with the Common Stock
and the Class B Common Stock voting together without regard to class or
separately as a class or classes as may be prescribed by the provisions of the
Restated Certificate of Incorporation, provided, however, that with respect to
the election of directors pursuant to the provisions of the Restated Certificate
of Incorporation and these By-laws, the persons receiving the greatest number of
votes, in descending order, shall be elected for the positions to be filled. The
absence of a quorum as provided for herein for the taking of any one action or
the deciding of any one question shall not prevent the taking of any other
action or the deciding of any other question for which a quorum is present.
Section 7. INSPECTORS OF ELECTION. The Corporation shall, in advance of
any meeting of stockholders, appoint one or more inspectors of election to act
at the meeting and make a written report thereof. The Corporation may designate
one or more persons as alternate inspectors to replace any inspector who fails
to act. In the event that no inspector so appointed or designated is able to act
at a meeting of stockholders, the person presiding at the meeting shall appoint
one or more inspectors to act at the meeting. Each inspector, before entering
upon the discharge of his or her duties, shall take and sign an oath faithfully
to execute the duties of inspector with strict impartiality and according to the
best of his or her ability. The inspector or inspectors so appointed or
designated shall (i) ascertain the number of shares of capital stock of the
Corporation outstanding and the voting power of each such share, (ii) determine
the shares of capital stock of the Corporation represented at the meeting and
the validity of proxies and ballots, (iii) count all votes and ballots, (iv)
determine and retain for a reasonable period a record of the disposition of any
challenges made to any determination by the inspectors, and (v) certify their
determination of the number of shares of capital stock of the Corporation
represented at the meeting and such inspectors' count of all votes and ballots.
Such certification shall specify such other information as may be required by
law. In determining the validity and counting of proxies and ballots cast at any
meeting of stockholders of the Corporation, the inspectors may consider such
information as is permitted by applicable law. No person who is a candidate for
an office at an election may serve as an inspector at such election.
<PAGE>
Section 8. CONDUCT OF MEETINGS. The date and time of the opening and
closing of the polls for each matter upon which the stockholders will vote at a
meeting shall be announced at such meeting by the person presiding over the
meeting. The Board of Directors of the Corporation may adopt by resolution such
rules, regulations or procedures for the conduct of meetings of stockholders as
it shall deem appropriate. Except to the extent inconsistent with such rules,
regulations or procedures as adopted by the Board of Directors, the chair of any
meeting of stockholders shall have the right and authority to prescribe such
rules, regulations and procedures and to do all such acts as, in the judgment of
such chair, are appropriate for the proper conduct of the meeting. Such rules,
regulations or procedures, whether adopted by the Board of Directors or
prescribed by the chair of the meeting, may include, without limitation, the
following: (1) the establishment of an agenda or order of business for the
meeting; (2) rules and procedures for maintaining order at the meeting and the
safety of those present; (3) limitations on attendance at or participation in
the meeting to the stockholders of record of the Corporation, their duly
authorized and constituted proxies or such other persons as the chair shall
permit; (4) restrictions on entry to the meeting after the time fixed for the
commencement thereof; and (5) limitations on the time allotted to questions or
comments by participants. Unless, and to the extent determined by the Board of
Directors or the chair of the meeting, meetings of stockholders shall not be
required to be held in accordance with rules of parliamentary procedure.
Section 9. NOTICE OF STOCKHOLDER BUSINESS. At an annual meeting of the
stockholders, only such business shall be conducted as shall have been properly
brought before the meeting. To be properly brought before an annual meeting,
business must be (a) specified in the notice of meeting (or any supplement
thereto) given by or at the direction of the Board of Directors, (b) otherwise
properly brought before the meeting by or at the direction of the Board of
Directors or by a stockholder or stockholders holding, in the aggregate, at
least twenty-five percent (25%) of the outstanding votes entitled to be cast by
holders of the Common Stock and Class B Common Stock voting together without
regard to class, or (c) otherwise properly requested to be brought before the
meeting by a stockholder. For business to be properly requested to be brought
before an annual meeting by a stockholder pursuant to (c) above, the stockholder
must have given timely notice thereof in writing to the Secretary of the
Corporation. To be timely, a stockholder's notice must be delivered to or mailed
and received at the principal executive offices of the Corporation not less than
sixty (60) days prior to the meeting; provided, however, that in the event that
the date of the meeting is not publicly announced by the Corporation by mail,
press release or otherwise more than sixty (60) days prior to the meeting,
notice by the stockholder to be timely must be delivered to the Secretary of the
Corporation not later than the close of business on the fifteenth (15th) day
following the day on which such announcement of the date of the meeting was
mailed to stockholders. A stockholder's notice to the Secretary shall set forth
as to each matter the stockholder proposes to bring before the annual meeting:
(a) a brief description of the business desired to be brought before the annual
meeting and the reasons for conducting such business at the annual meeting, (b)
the name and address, as they appear on the Corporation's books, of the
stockholder proposing such business, (c) the class and number of shares of the
Corporation which are beneficially owned by the stockholder, and (d) any
material interest of the stockholder in such business. Notwithstanding anything
in the By-laws to the contrary, no business shall be conducted at an annual
meeting except in
<PAGE>
accordance with the procedures set forth in this Section 9, Article I of these
By-laws. The chair of an annual meeting, shall, if the facts warrant, determine
and declare to the meeting that business was not properly brought before the
meeting in accordance with the provisions of this Section 9 of these By-laws,
and if he or she should so determine, he or she shall so declare to the meeting
and any such business not properly brought before the meeting shall not be
transacted.
ARTICLE II - STOCK
Section 1. STOCK CERTIFICATES. The shares of the Corporation shall be
represented by certificates or shall be uncertificated. Each registered holder
of shares, upon request to the Corporation, shall be provided a certificate of
stock, representing the number of shares owned by such holder. Absent a specific
request for such a certificate by the registered owner or transferee thereof,
all shares shall be uncertificated upon the original issuance thereof by the
Corporation or upon the surrender of the certificate representing such shares to
the Corporation. Certificates for shares of the capital stock of the Corporation
shall be in such form as shall be approved by the Board of Directors. They shall
be signed by or have engraved thereon a facsimile signature of the Chief
Executive Officer and the Treasurer or an Assistant Treasurer or the Secretary
or an Assistant Secretary, certifying the number and class of the Corporation's
shares held by such stockholder.
Section 2. TRANSFER AGENTS AND REGISTRARS. The Board of Directors may,
in its discretion, appoint responsible banks or trust companies or other
appropriately qualified institutions to act as Transfer Agents and Registrars of
the stock of the Corporation; and, upon such appointments being made, no stock
certificate shall be valid until countersigned by one of such Transfer Agents
and registered by one of such Registrars. Where any such certificate is
registered with the manual signature of a Registrar, the countersignature of a
Transfer Agent may be a facsimile or engraved, stamped or printed. The Board of
Directors may also make such additional rules and regulations as it may deem
expedient concerning the issue, transfer and registration of uncertificated
shares or certificates for shares of the capital stock of the Corporation.
Section 3. TRANSFER OF STOCK. Shares of stock may be transferred by
delivery of the certificates therefore, accompanied by an assignment in writing
on the back of the certificates or by written power of attorney to sell, assign
and transfer the same, signed by the record holder thereof , upon receipt of
proper transfer instructions from the owner of uncertificated shares, or upon
the escheat of said shares under the laws of any state of the United States. In
no event shall a transfer of shares affect the right of the Corporation to pay
any dividend upon the stock to the holder of record thereof for all purposes,
and no transfer shall be valid, except between the parties thereto, until such
transfer shall have been made upon the books of the Corporation.
Section 4. LOST CERTIFICATES. In case any certificate of stock shall be
lost, stolen or destroyed, the Board of Directors, in its discretion, may
authorize the issue of, or provide for the manner of issuing an uncertificated
share, or if requested by such holder, a substitute share certificate in place
of the certificate so lost, stolen or destroyed; provided, that, in each such
case, the applicant for a substitute certificate shall furnish to the
Corporation and to such of its Transfer Agents and Registrars as may require the
same evidence to their satisfaction, in their discretion, of the loss, theft or
destruction of such certificate and of the ownership thereof, and also such
security or indemnity as may be required by them.
Section 5. RECORD DATE. The Board of Directors may fix a record date
for the purpose of determining the stockholders entitled to notice of or to vote
at any meeting of stockholders or any adjournment thereof; to receive payment of
any dividend or other distribution or allotment of any rights or to exercise any
rights in respect of any change, conversion or exchange of stock; or for the
purpose of any other lawful action. The record date shall not precede the date
upon which the resolution fixing the record date is adopted by the Board of
Directors, and the record date shall not be more than sixty (60) days prior to
the date of such meeting or such action, or, with respect to any such meeting,
less than ten (10) days before the date of such meeting. Only stockholders of
record on the record date shall be entitled to notice of and to vote at such
meeting, or to receive such dividends or rights, or to exercise such rights, as
the case may be. A determination of stockholders of record entitled to notice of
or to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting. The Board of Directors may fix a record date for
the purpose of determining the stockholders entitled to consent to corporate
action in writing without a meeting, which record date shall not precede the
date upon which the resolution fixing the record date is adopted by the Board of
Directors, and shall not be more than ten (10) days after the date upon which
the resolution fixing the record date is adopted by the Board of Directors.
Section 6. DIVIDENDS. The Board of Directors may declare and pay such
dividends upon the shares of the Corporation's capital stock out of the surplus
of the net profits of the Corporation as it may deem expedient and as the
condition of the Corporation shall warrant.
ARTICLE III - BOARD OF DIRECTORS
Section 1. NUMBER AND TERM OF OFFICE. Consistent with the provisions
of the Restated Certificate of Incorporation, the Board of Directors shall have
the power by resolution to fix the number of directors and from time to time
increase or decrease the number thereof. The directors shall be elected
annually, and each director shall continue in office until his successor shall
have been elected and qualified, or until his death or until he shall resign or
shall have been removed.
<PAGE>
Section 2. DIRECTOR NOMINATIONS. Nominations for the election of
directors, whether by vote of the Common Stock and the Class B Common Stock
voting together as a single class or the Common Stock voting as a separate
class, may be made by (a) the Board of Directors, (b) a committee appointed by
the Board of Directors, (c) a stockholder or stockholders holding at least
twenty-five percent (25%) of the outstanding votes entitled to be cast by
holders of the Common Stock and Class B Common Stock voting together without
regard to class, or (d) any stockholder entitled to vote in the election of
directors generally. However, any stockholder entitled to vote in the election
of directors generally may nominate one or more persons for election as
directors at a meeting as provided for in (d) above only if written notice of
such stockholder's intent to make such nomination or nominations has been given,
either by personal delivery or by United States mail, postage prepaid, to the
Secretary of the Corporation not later than (i) with respect to an election to
be held at an annual meeting of stockholders, sixty (60) days prior to the
anniversary date of the immediately preceding annual meeting, and (ii) with
respect to an election to be held at a special meeting of stockholders for the
election of directors, the close of business on the fifteenth (15th) day
following the date on which notice of such meeting is first given to
stockholders. Each such notice shall set forth: (a) the name and address of the
stockholder who intends to make the nomination and of the person or persons to
be nominated; (b) a representation that the stockholder is a holder of record of
stock of the Corporation entitled to vote at such meeting and intends to appear
in person or by proxy at the meeting to nominate the person or persons specified
in the notice; (c) a description of all arrangements or understandings between
the stockholder and each nominee and any other person or persons (naming such
person or persons) pursuant to which the nomination or nominations are to be
made by the stockholder; (d) such other information regarding each nominee
proposed by such stockholder as would be required to be included in a proxy
statement filed pursuant to the proxy rules of the Securities and Exchange
Commission; and (e) the consent of each nominee to serve as a director of the
Corporation if so elected. The chair of the meeting may refuse to acknowledge
the nomination of a person not made in compliance with the foregoing procedure.
Section 3. ORGANIZATION MEETING. The Board of Directors shall meet as
soon as practicable after the annual election of directors for the purpose of
organization and the transaction of other business. No notice of such meeting
shall be required. Such organization meeting may be held at any other time or
place which shall be specified in a notice given as hereinafter provided for
special meetings of the Board or in a consent and waiver of notice thereof,
signed by all the directors.
Section 4. STATED MEETINGS. The Board of Directors may by resolution
appoint the time and place for holding stated meetings of the Board, if deemed
advisable; and such stated meetings shall be held at the time and place so
appointed, without the giving of any special notice. In case the day appointed
for the stated meeting shall fall on a legal holiday, such meeting shall be held
on the next following business day, not a legal holiday, at the same hour.
<PAGE>
Section 5. SPECIAL MEETINGS. Special meetings of the Board of
Directors shall be held whenever called by the Chairman or Vice Chairman of the
Board of Directors or by the President or by one-sixth (calculated to the
nearest whole number) of the total number of directors constituting the Board of
Directors. Notice of any such meeting, setting forth the time and place of the
meeting, shall be mailed to each director, addressed to him or her at his or her
residence or usual place of business, not later than the second day before the
day on which the meeting is to be held, or shall be sent to him or her at such
place by telegraph, or be delivered personally, or by telephone or other oral
means, not later than the day before the day on which the meeting is to be held.
Except as otherwise provided in these By-laws or as may be indicated in the
notice thereof, any and all business may be transacted at any special meeting.
Section 6. NOTICE OF MEETINGS. Notice of any meeting of the Board of
Directors or of any committee need not be given to any director if waived by him
or her in writing, whether before or after such meeting, or if he or she shall
be present at the meeting without objection; and any meeting of the Board of
Directors, or of any committee, shall be a legal meeting without any notice
thereof having been given, if all the members shall be present thereat.
Section 7. PARTICIPATION BY CONFERENCE TELEPHONE. Members of the Board
of Directors or of any committee may participate in a meeting of the Board or
committee by means of conference telephone or similar communication equipment by
means of which all persons participating in the meeting can hear each other, and
such participation in a meeting shall constitute presence in person at such
meeting.
Section 8. QUORUM AND MANNER OF ACTING. A majority of the total number
of directors constituting the Board of Directors at the time of any meeting
shall constitute a quorum for the transaction of business; and, except as
otherwise required by these By-laws, the act of a majority of the directors
present at any such meeting at which a quorum is present shall be the act of the
Board of Directors.
Section 9. DIRECTORS' FEES. The Board of Directors shall have
authority to determine the amount of compensation which shall be paid to its
members.
Section 10. SIGNATURE OF NEGOTIABLE INSTRUMENTS. All bills, notes,
checks or other instruments for the payment of money shall be signed or
countersigned in such manner as may be prescribed by resolution (whether general
or special) of the Board of Directors or the Executive Committee.
Section 11. FISCAL YEAR. The fiscal year of the Corporation shall be
the calendar year or as the Board of Directors may prescribe by resolution.
<PAGE>
ARTICLE IV - EXECUTIVE COMMITTEE AND OTHER COMMITTEES
Section 1. EXECUTIVE COMMITTEE; CONSTITUTION. The Board of Directors
may, by resolution passed by a majority of the whole Board, constitute or
reconstitute an Executive Committee, which shall be composed of the Chairman of
the Board, the President and such other members of the Board as the Board may
determine. Any vacancy in the Executive Committee shall be filled by vote of a
majority of the whole Board. The members of the Executive Committee shall act
only as a committee, and the individual members shall have no power as such.
Section 2. EXECUTIVE COMMITTEE; POWERS. The Executive Committee, to
the extent permitted by the Delaware General Corporation Law and to the extent
provided by resolution passed by a majority of the whole Board of Directors,
shall have and may exercise all the powers and authority of the Board in the
management of the business and affairs of the Corporation.
Section 3. EXECUTIVE COMMITTEE; MEETINGS, QUORUM AND MANNER OF ACTING.
Stated and special meetings of the Executive Committee shall be held and notice
thereof given in the same manner provided for meetings of the Board of
Directors. The provisions of these By-laws relating to the determination of a
quorum and the manner of acting at meetings of the Board shall also apply to the
Executive Committee.
Section 4. EXECUTIVE COMMITTEE; RECORDS. The Executive Committee shall
keep a record of its acts and proceedings and shall report the same from time to
time to the Board of Directors. The Secretary of the Corporation or, in his
absence, an Assistant Secretary, shall act as secretary to the Executive
Committee; or the Committee may, in its discretion, appoint its own secretary.
Section 5. OTHER COMMITTEES. The Board of Directors may appoint
other committees for any purposes and may delegate to any such committee, or to
any officer or officers, such powers as the Board may deem expedient.
ARTICLE V - OFFICERS
Section 1. OFFICERS; GENERALLY. The elected officers of the
Corporation shall be a Chairman of the Board of Directors and a President (each
of whom shall be a director), one or more Senior Vice Presidents or Executive
Vice Presidents or Vice Presidents, a Secretary, and a Treasurer. The Board of
Directors or the Executive Committee may also appoint such other officers and
agents as may appear to be necessary or advisable in the conduct of the affairs
of the Corporation.
<PAGE>
Section 2. TERM OF OFFICE. So far as practicable, all elected officers
shall be elected at the organization meeting of the Board of Directors, in each
year, and shall hold office until the organization meeting of the Board in the
next subsequent year and until their respective successors are elected and
qualified. All other officers shall hold office during the pleasure of the
Board, and in the case of officers appointed by the Executive Committee, such
officers shall hold office during its pleasure as well as that of the Board.
Section 3. REMOVAL OF ELECTED OFFICERS. Any elected officer may be
removed at any time, either with or without cause, by vote of a majority of the
whole Board of Directors, at any meeting, or by unanimous written consent of the
Board as provided for in Section 11 of Article III of these By-laws.
Section 4. VACANCIES. If any vacancy occurs in any office, the Board
of Directors may elect or appoint, or, in the case of an appointive office, the
Executive Committee may appoint, a successor to fill such vacancy for the
remainder of the term of such office.
Section 5. CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman of the
Board of Directors shall also be the Chairman of the Executive Committee and
shall preside, when present, at all meetings of the stockholders, of the Board
of Directors, and of the Executive Committee. He shall have such other powers
and perform such other duties as may from time to time be assigned or required
by the Board of Directors or the Executive Committee.
Section 6. PRESIDENT. The President shall have such powers and
perform such duties as may from time to time be assigned or required by the
Board of Directors or the Executive Committee.
Section 7. CHIEF EXECUTIVE OFFICER. The Chairman or the President
shall be designated by the Board of Directors as Chief Executive Officer of the
Corporation. The Chief Executive Officer shall have active and general
supervision over the business and affairs of the Corporation, and in the case of
his temporary absence, he shall have the authority to designate who shall act as
Chief Executive Officer in his place. In the case of his inability to discharge
his powers and duties, the President shall act as Chief Executive Officer.
Section 8. CHIEF OPERATING OFFICER. The Chief Operating Officer of
the Corporation shall be the President or, as may be designated by the Board of
Directors, the Executive Committee, or the Chief Executive Officer.
Section 9. DIVISION PRESIDENTS, SENIOR VICE PRESIDENTS, EXECUTIVE VICE
PRESIDENTS AND VICE PRESIDENTS. The several Division Presidents, Senior Vice
Presidents, Executive Vice Presidents or Vice Presidents shall have such powers
and perform such duties as may from time to time be assigned or required by the
Board of Directors, the Executive Committee, the Chief Executive Officer, or
their immediate superior.
<PAGE>
Section 10. SECRETARY. The Secretary shall attend to the giving of
notice of all meetings of stockholders and of the Board of Directors and shall
keep and attest true records of all proceedings at such meetings. He shall have
charge of the corporate seal and have authority to attest any and all
instruments or writings to which the same may be affixed. He shall keep and
account for all basic documents, papers and records of the Corporation. He shall
have authority to sign stock certificates, and shall generally perform all the
duties usually appertaining to the office of the secretary of a corporation. In
the absence of the Secretary, an Assistant Secretary or Secretary pro tempore
shall perform his duties.
Section 11. TREASURER. The Treasurer shall have the care and custody
of all moneys, funds and instruments denominated with a monetary value, and
shall deposit or cause to be deposited all funds of the Corporation in and with
such depositaries as the Board of Directors or the Executive Committee shall by
resolution (whether general or special) direct. He shall have power to sign
stock certificates; to endorse for deposit or collection, or otherwise, all
checks, drafts, notes, stock certificates, bills of exchange or other commercial
paper payable to or in the name of the Corporation, and to give proper receipts
or discharges therefor; and shall generally perform all duties usually
appertaining to the office of the treasurer of a corporation. In the absence of
the Treasurer, the Board of Directors or the Executive Committee shall appoint
an Assistant Treasurer to perform his duties.
Section 12. COMPENSATION. The compensation of all elected officers of
the Corporation shall be fixed by the Board of Directors; and the compensation
of all appointed officers shall be fixed, or the method of so doing shall be
provided for, by either the Board of Directors or the Executive Committee.
ARTICLE VI - INDEMNIFICATION
Section 1. GENERAL. The Corporation shall indemnify and hold harmless,
to the fullest extent permitted by the Delaware General Corporation Law as it
presently exists or may be hereafter amended from time to time, any person who
was or is made or is threatened to be made a party or is otherwise involved in
any threatened, pending or completed action, suit, arbitration, alternative
dispute resolution mechanism or proceeding, whether civil, criminal,
administrative or investigative ("Proceeding") by reason of the fact that such
person, or a person for whom such person is the legal representative, is or was
(a) a director or officer of the Corporation or its
subsidiaries, or
(b) a director, officer or employee of the Corporation and is
or was serving at the request of the Corporation through
designation by the Chief Executive Officer as a director,
officer, employee, agent or fiduciary of another
corporation or of a partnership, joint venture, trust,
nonprofit entity or other enterprise, including service
with respect to employee benefit plans,
<PAGE>
against all liability and loss suffered and expenses (including attorneys'
fees), judgments, penalties, fines and amounts paid in settlement actually and
reasonably incurred by such person or on such person's behalf in connection with
any such Proceeding. However, the Corporation shall be required to indemnify a
person in connection with a Proceeding (or part thereof) initiated by such
person only if the Proceeding (or part thereof) was or is authorized by the
Board of Directors of the Corporation.
Section 2. ADVANCEMENT OF EXPENSES. The Corporation shall pay the
reasonable expenses (including attorneys' fees) as and when incurred by a
director or officer of the Corporation in connection with any Proceeding
described in Section 1 in advance of its final disposition, PROVIDED, HOWEVER,
that such payment shall be made only upon a receipt of an undertaking by the
director or officer to repay all expenses (including attorneys' fees) advanced
if it should be ultimately determined that the director or officer is not
entitled to be indemnified under this Article or otherwise. Payment of such
expenses (including attorneys' fees) incurred by employees of the Corporation
may be made by the Board of Directors in its discretion upon such terms and
conditions, if any, as it deems appropriate.
Section 3. RIGHTS NOT EXCLUSIVE. The rights conferred on any person by
this Article VI shall not be exclusive of any other rights which such person may
have or hereafter acquire under any statute, provision of the Corporation's
Certificate of Incorporation, these By-laws, agreement, vote of stockholders or
disinterested directors, or otherwise. The indemnification and advancement of
expenses provided for by this Article VI shall continue as to a person who has
ceased to be a director, officer or employee described in Section 1 and shall
inure to the benefit of the heirs, executors and administrators of such a
person.
Section 4. CLAIMS. Notwithstanding any other provision of this Article
VI, if a claim by a director, officer or employee described in Section 1 for
indemnification or advancement of expenses under this Article VI is not paid in
full within thirty days after a written claim therefor has been received by the
Corporation, the claimant may file suit to recover the unpaid amount of such
claim and, if successful in whole or in part, shall be entitled to be paid in
full all costs and expenses (including attorneys' fees) of prosecuting such
claim. In any such action, the Corporation shall have the burden of proving that
the claimant was not entitled to the requested indemnification or advancement of
expenses under applicable law and this Article VI.
Section 5. OTHER INDEMNIFICATION. The Corporation's obligation to
indemnify or advance expenses hereunder to a person who is or was serving at the
request of the Corporation (as provided for in Section 1) as a director,
officer, employee, agent or fiduciary of any other corporation, partnership,
joint venture, trust, nonprofit entity, employee benefit plan or other
enterprise shall be reduced by any amount such person is entitled to and
actually receives as indemnification or advancement of expenses from such other
corporation, partnership, joint venture, trust, nonprofit entity, employee
benefit plan or other enterprise.
Section 6. AMENDMENT OR REPEAL. Any repeal or modification of the
foregoing provisions of this Article VI shall not adversely affect any right or
protection hereunder of any person in respect of any act or omission occurring
prior to or at the time of such repeal or modification.
<PAGE>
ARTICLE VII - EMERGENCY CONDITIONS
Section 1. BOARD OF DIRECTORS. During any emergency resulting from an
attack on the United States or on a locality in which the Corporation conducts
its business or customarily holds meetings of its Board of Directors or its
stockholders or during a nuclear or atomic disaster or during the existence of
any catastrophe, or other similar emergency condition (any of the foregoing is
hereinafter referred to as an "Emergency Condition"), as a result of which a
quorum of the Board of Directors cannot readily be convened for action
(including by telephone), then in addition to any director or directors who are
able and available, the elected officers of the Corporation, as and in the order
designated in advance by the Chief Executive Officer of the Corporation and
approved by the Board of Directors, who are able and available shall be deemed
for all purposes to be directors to the extent required to constitute a quorum
for any meeting of the Board of Directors during such Emergency Condition,
notwithstanding any limitations or other provisions contained in the Restated
Certificate of Incorporation, these By-laws or resolutions of the Board of
Directors in effect at the time of the Emergency Condition.
Section 2. CHIEF EXECUTIVE OFFICER. If as a result of any Emergency
Condition or due to his incapacitation, the Chief Executive Officer is unable or
unavailable to act, then until the Chief Executive Officer becomes able and
available to act or a new Chief Executive Officer is elected by the Board of
Directors, the officer of the Corporation, as and in the order designated in
advance by the Chief Executive Officer of the Corporation and approved by the
Board of Directors, who is able and available to act shall act as Chief
Executive Officer of the Corporation.
Section 3. NOTICE OF MEETINGS. During an Emergency Condition or during
anytime in which the Chief Executive Officer becomes unable or unavailable to
act, a meeting of the Board of Directors may be called by the Chairman of the
Board or the Chair of the Committee on Directors and Corporate Governance. If
neither is able and available, then a meeting of the Board of Directors may be
called by any director, and if none are able and available to do so, by any
elected officer of the Corporation. Such meeting shall be called by notice of
the time and place given to such of the directors, or officers serving as
directors in accordance with this Article, as it may be feasible to reach at the
time and by such means (including electronic) as may be feasible at the time.
Section 4. POWERS DURING AN EMERGENCY CONDITION. During an Emergency
Condition, the Board of Directors (including those serving as the Board pursuant
to Section 1 above) may take any acts in good faith deemed necessary and in the
best interests of the Corporation, including, but not limited to, changing the
head office or designating several alternative head offices or regional offices
of the Corporation, or providing for and from time to time modifying lines of
succession in the event that during any such Emergency Condition any or all
officers or agents of the Corporation shall for any reason be rendered incapable
of discharging their duties.
Section 5. LIABILITY. No officer or director shall be liable for any
act taken in accordance with this Article during an Emergency Condition, except
for willful misconduct.
Section 6. EFFECTIVENESS OF OTHER BY-LAWS. To the extent not
inconsistent with the provisions of this Article, the other By-laws of the
Corporation shall remain in effect during any Emergency Condition and upon its
termination, the provisions of this Article shall cease to be operative.
ARTICLE VIII - AMENDMENTS
These By-laws may be amended or repealed, in whole or in part, and new
By-laws may be adopted, either by the affirmative vote of a majority of the
votes entitled to be cast by the holders of the Common Stock and the Class B
Common Stock voting together without regard to class, given at any meeting of
stockholders or by a consent, or by the affirmative vote of two-thirds
(calculated to the nearest whole number) of the total number of directors
constituting the Board of Directors, given at any meeting of directors or by a
consent.
<PAGE>
CERTIFICATE
COMMONWEALTH OF PENNSYLVANIA:
COUNTY OF DAUPHIN:
I, the undersigned, Assistant Secretary of HERSHEY FOODS CORPORATION, a
corporation organized and existing under the laws of the State of Delaware,
hereby certify that the foregoing is a true and complete copy of the By-laws of
the Corporation, and that the same are in full force and effect.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed the seal of
the Corporation.
APRIL 24, 1995 _____________________ Date
- ------------------------
Assistant Secretary
<TABLE>
<CAPTION>
EXHIBIT 12
HERSHEY FOODS CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(IN THOUSANDS OF DOLLARS EXCEPT FOR RATIOS)
(UNAUDITED)
FOR THE SIX MONTHS ENDED
JULY 5, JUNE 29,
1998 1997
---------- --------
EARNINGS:
<S> <C> <C>
Income before income taxes $ 202,291 $ 196,801
Add (deduct):
Interest on indebtedness 45,188 33,177
Portion of rents representative of the
interest factor (a) 5,813 5,972
Amortization of debt expense 292 152
Amortization of capitalized interest 1,770 1,757
---------- ----------
Earnings as adjusted $ 255,354 $ 237,859
========== ==========
FIXED CHARGES:
Interest on indebtedness $ 45,188 $ 33,177
Portion of rents representative of the
interest factor (a) 5,813 5,972
Amortization of debt expense 292 152
Capitalized interest 1,144 442
---------- ----------
Total fixed charges $ 52,437 $ 39,743
========== ==========
RATIO OF EARNINGS TO FIXED CHARGES 4.87 5.98
========== ==========
</TABLE>
NOTE:
(a) Portion of rents representative of the interest factor consists of
one-third of rental expense for operating leases.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM HERSHEY
FOODS CORPORATION'S CONSOLIDATED CONDENSED BALANCE SHEET AS OF JULY 05, 1998 AND
CONSOLIDATED STATEMENT OF INCOME FOR THE SIX MONTHS ENDED JULY 05, 1998 AND IS
QUALIFIED IN ITS ENTIRETY TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUL-05-1998
<CASH> 33,631
<SECURITIES> 0
<RECEIVABLES> 230,442<F1>
<ALLOWANCES> 0
<INVENTORY> 623,578
<CURRENT-ASSETS> 1,025,637
<PP&E> 2,649,001
<DEPRECIATION> 1,002,376
<TOTAL-ASSETS> 3,286,994
<CURRENT-LIABILITIES> 721,162
<BONDS> 1,029,121
0
0
<COMMON> 179,950
<OTHER-SE> 731,609
<TOTAL-LIABILITY-AND-EQUITY> 3,286,994
<SALES> 1,978,475
<TOTAL-REVENUES> 1,978,475
<CGS> 1,175,055
<TOTAL-COSTS> 1,732,734
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 43,450
<INCOME-PRETAX> 202,291
<INCOME-TAX> 78,893
<INCOME-CONTINUING> 123,398
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 123,398
<EPS-PRIMARY> .86
<EPS-DILUTED> .85
<FN>
<F1>BALANCE IS NET OF RESERVES FOR DOUBTFUL ACCOUNTS AND CASH DISCOUNTS.
</FN>
</TABLE>
