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 APRIL 2, 2000
--------------------------------------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
------------------------------------------
Commission file number 1-183
-----------------------------------------------------
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
- --------------------------------------------------------------------------------
(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 - 106,727,971 shares, as of May 1, 2000. Class B
Common Stock, $1 par value - 30,443,908 shares, as of May 1, 2000.
Exhibit Index - Page 15
1
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
HERSHEY FOODS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
FOR THE THREE MONTHS ENDED
APRIL 2, APRIL 4,
2000 1999
----------- ----------
NET SALES $ 993,115 $ 945,152
---------- ---------
COSTS AND EXPENSES:
Cost of sales 605,097 562,164
Selling, marketing and administrative 253,800 266,754
Gain on sale of business --- (243,785)
---------- ----------
Total costs and expenses 858,897 585,133
---------- ----------
INCOME BEFORE INTEREST AND INCOME TAXES 134,218 360,019
Interest expense, net 17,530 18,440
---------- ----------
INCOME BEFORE INCOME TAXES 116,688 341,579
Provision for income taxes 45,508 116,909
---------- ----------
NET INCOME $ 71,180 $ 224,670
========== ==========
NET INCOME PER SHARE - BASIC $ .51 $ 1.58
========== ==========
NET INCOME PER SHARE - DILUTED $ .51 $ 1.57
========== ==========
AVERAGE SHARES OUTSTANDING - BASIC 138,455 141,795
========== =========
AVERAGE SHARES OUTSTANDING - DILUTED 139,216 143,293
========== =========
CASH DIVIDENDS PAID PER SHARE:
Common Stock $ .2600 $ .2400
========== =========
Class B Common Stock $ .2350 $ .2175
========== =========
The accompanying notes are an integral part of these statements.
2
<PAGE>
<TABLE>
<CAPTION>
HERSHEY FOODS CORPORATION
CONSOLIDATED BALANCE SHEETS
APRIL 2, 2000 AND DECEMBER 31, 1999
(IN THOUSANDS OF DOLLARS)
ASSETS 2000 1999
-------------- --------------
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 46,558 $ 118,078
Accounts receivable - trade 313,465 352,750
Inventories 618,774 602,202
Deferred income taxes 84,382 80,303
Prepaid expenses and other 105,095 126,647
-------------- --------------
Total current assets 1,168,274 1,279,980
-------------- --------------
PROPERTY, PLANT AND EQUIPMENT, AT COST 2,597,645 2,572,268
Less - accumulated depreciation and amortization (1,084,223) (1,061,808)
-------------- --------------
Net property, plant and equipment 1,513,422 1,510,460
-------------- --------------
INTANGIBLES RESULTING FROM BUSINESS ACQUISITIONS 446,428 450,165
OTHER ASSETS 104,329 106,047
-------------- --------------
Total assets $ 3,232,453 $ 3,346,652
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 88,591 $ 136,567
Accrued liabilities 292,489 292,497
Accrued income taxes 70,317 72,159
Short-term debt 174,531 209,166
Current portion of long-term debt 2,523 2,440
-------------- --------------
Total current liabilities 628,451 712,829
LONG-TERM DEBT 878,079 878,213
OTHER LONG-TERM LIABILITIES 327,303 330,938
DEFERRED INCOME TAXES 318,865 326,045
-------------- --------------
Total liabilities 2,152,698 2,248,025
-------------- --------------
STOCKHOLDERS' EQUITY:
Preferred Stock, shares issued:
none in 2000 and 1999 --- ---
Common Stock, shares issued:
149,506,964 in 2000 and in 1999 149,507 149,507
Class B Common Stock, shares issued:
30,443,908 in 2000 and in 1999 30,443 30,443
Additional paid-in capital 29,266 30,079
Unearned ESOP compensation (21,556) (22,354)
Retained earnings 2,549,273 2,513,275
Treasury-Common Stock shares at cost:
42,802,415 in 2000 and 41,491,253 in 1999 (1,608,169) (1,552,708)
Accumulated other comprehensive loss (49,009) (49,615)
-------------- --------------
Total stockholders' equity 1,079,755 1,098,627
-------------- --------------
Total liabilities and stockholders' equity $ 3,232,453 $ 3,346,652
============== ==============
</TABLE>
The accompanying notes are an integral part of these balance sheets.
3
<PAGE>
<TABLE>
<CAPTION>
HERSHEY FOODS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
FOR THE THREE MONTHS ENDED
-----------------------------
APRIL 2, APRIL 4,
2000 1999
------------- --------------
CASH FLOWS PROVIDED FROM (USED BY) OPERATING ACTIVITIES
<S> <C> <C>
Net Income $ 71,180 $ 224,670
Adjustments to Reconcile Net Income to Net Cash
Provided from Operations:
Depreciation and amortization 43,203 40,518
Deferred income taxes (11,259) (7,211)
Gain on sale of business-net of tax of $78,769 --- (165,016)
Changes in assets and liabilities, net of effects from
business divestiture:
Accounts receivable - trade 39,285 208,976
Inventories (16,572) (100,074)
Accounts payable (47,976) (26,195)
Other assets and liabilities 15,428 (36,453)
----------- ------------
Net Cash Flows Provided from Operating Activities 93,289 139,215
----------- -----------
CASH FLOWS PROVIDED FROM (USED BY) INVESTING ACTIVITIES
Capital additions (30,045) (28,769)
Capitalized software additions (1,652) (8,820)
Proceeds from divestiture --- 450,000
Other, net (5,851) 1,456
------------- -----------
Net Cash Flows (Used by) Provided from Investing Activities (37,548) 413,867
------------ -----------
CASH FLOWS PROVIDED FROM (USED BY) FINANCING ACTIVITIES
Net (decrease) in short-term debt (34,635) (279,755)
Long-Term Borrowings 102 ---
Repayment of long-term debt (192) (48)
Cash dividends paid (35,182) (33,221)
Exercise of stock options 658 13,287
Incentive plan transactions (2,670) ---
Repurchase of Common Stock (55,342) (236,959)
------------ -----------
Net Cash Flows (Used by) Financing Activities (127,261) (536,696)
------------ -----------
Increase (Decrease) in Cash and Cash Equivalents (71,520) 16,386
Cash and Cash Equivalents, beginning of period 118,078 39,024
----------- -----------
Cash and Cash Equivalents, end of period $ 46,558 $ 55,410
=========== ===========
------------------------------------------------------------------
Interest Paid $ 29,613 $ 33,607
============= ===========
Income Taxes Paid $ 58,484 $ 20,666
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
<TABLE>
<CAPTION>
HERSHEY FOODS CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Accumulated
Class B Additional Unearned Treasury Other Total
Preferred Common Common Paid-in ESOP Retained Common Comprehensive Stockholders'
Stock Stock Stock Capital Compensation Earnings Stock Income (Loss) Equity
- -----------------------------------------------------------------------------------------------------------------------------------
In thousands of dollars
Balance as of
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
December 31, 1999 $ --- $ 149,507 $30,443 $ 30,079 $(22,354) $2,513,275 $(1,552,708) $(49,615) $1,098,627
----------
Comprehensive income:
Net income 71,180 71,180
Other comprehensive
income:
Foreign currency
translation
adjustments 606 606
----------
Comprehensive income 71,786
Dividends:
Common Stock, $.26
per share (28,028) (28,028)
Class B Common
Stock, $.235
per share (7,154) (7,154)
Incentive plan
transactions (400) (400)
Exercise of stock
options (506) 51 (455)
Employee stock
ownership trust/
benefits transactions 93 798 891
Repurchase of
Common Stock (55,512) (55,512)
Balance as of ------ --------- ------- -------- -------- ---------- ----------- -------- ----------
April 2, 2000 $ --- $ 149,507 $30,443 $ 29,266 $(21,556) $2,549,273 $(1,608,169) $(49,009) $1,079,755
====== ========= ======= ======== ======== ========== =========== ======== ==========
</TABLE>
The accompanying notes are an integral part of this statement.
5
<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 ended April 2,
2000, are not necessarily indicative of the results that may be
expected for the year ending December 31, 2000. For more information,
refer to the consolidated financial statements and footnotes included
in the Corporation's 1999 Annual Report on Form 10-K.
2. INTEREST EXPENSE
Interest expense, net consisted of the following:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
--------------------------
APRIL 2, 2000 APRIL 4, 1999
------------- -------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
Interest expense $ 18,946 $ 19,551
Interest income (1,416) (902)
Capitalized interest --- (209)
---------- ---------
Interest expense, net $ 17,530 $ 18,440
========== =========
</TABLE>
3. NET INCOME PER SHARE
A total of 42,802,415 shares were held as Treasury Stock as of April 2,
2000.
In accordance with Statement of 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:
FOR THE THREE MONTHS ENDED APRIL 2, 2000 APRIL 4, 1999
- --------------------------------------------------------------------------------
In thousands except per share amounts
Net Income $ 71,180 $ 224,670
============ ===========
Weighted average shares-basic 138,455 141,795
Effect of dilutive securities:
Employee stock options 752 1,447
Performance and restricted stock units 9 51
------------ -----------
Weighted average shares -diluted 139,216 143,293
============ ===========
Net income per share - basic $ 0.51 $ 1.58
============ ===========
Net income per share -diluted $ 0.51 $ 1.57
============ ============
6
<PAGE>
4. 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:
<TABLE>
<CAPTION>
APRIL 2, 2000 DECEMBER 31, 1999
------------- -----------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
Raw materials $ 248,541 $ 270,711
Goods in process 48,116 49,412
Finished goods 368,112 365,575
----------- -----------
Inventories at FIFO 664,769 685,698
Adjustment to LIFO (45,995) (83,496)
----------- -----------
Total inventories $ 618,774 $ 602,202
=========== ===========
</TABLE>
5. LONG-TERM DEBT
In August 1997, the Corporation filed a Form S-3 Registration Statement
under which it could offer, on a delayed or continuous basis, up to
$500 million of additional debt securities. As of April 2, 2000, $250
million of debt securities remained available for issuance under the
August 1997 Registration Statement.
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 April 2, 2000 and December 31, 1999,
because of the relatively short maturity of these instruments. The
carrying value of long-term debt, including the current portion, was
$878.1 million as of April 2, 2000, compared to a fair value of $864.3
million, based on quoted market prices for the same or similar debt
issues.
As of April 2, 2000, the Corporation had foreign exchange forward
contracts maturing in 2000 and 2001 to purchase $28.7 million in
foreign currency, primarily British sterling, and to sell $24.9 million
in foreign currency, primarily Canadian dollars and Japanese yen, at
contracted forward rates.
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. As of April 2, 2000, the fair
value of foreign exchange forward 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. In October 1999, the Corporation entered into an
interest rate swap agreement to effectively convert $200 million of
6.7% Notes Due 2005 (Notes) to variable rate debt. The interest rate
swap agreement is cancelable at the sole discretion of the counterparty
effective April 2, 2001. At the same time, the Corporation entered into
forward interest rate agreements to fix the interest rate on the Notes
at 5.8% through April 2, 2001. Subsequently, if the counterparty
chooses not to cancel the agreement, the interest rate on the Notes
would be variable based on the London Interbank Offered Rate until
expiration on October 1, 2005.
7
<PAGE>
Any interest rate differential on interest rate swaps and forward
agreements is recognized as an adjustment to interest expense over the
term of each agreement. As of April 2, 2000, the fair value of interest
rate swaps and forward agreements approximated the contract value. The
Corporation's risk related to swaps and forward agreements is limited
to the cost of replacing such agreements at prevailing market rates.
7. 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 (SFAS No. 133). SFAS 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. SFAS 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.
SFAS No. 133 is effective for fiscal years beginning after June 15,
2000, but may be implemented as of the beginning of any fiscal quarter
after issuance. Retroactive application is not permitted. SFAS 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 commodity
futures contracts, foreign exchange forward contracts and interest rate
swaps and forward agreements.
The Corporation anticipates the adoption of SFAS No. 133 as of January
1, 2001. As of April 2, 2000, net deferred losses on derivatives of
approximately $39.0 million after tax would have been reported as a
component of other comprehensive loss and classified as accumulated
other comprehensive loss on the consolidated balance sheets upon
adoption of SFAS No. 133. The adoption of SFAS No. 133 is not expected
to have a material impact on the Corporation's results of operations.
8. SHARE REPURCHASES
A total of 572,553 shares of Common Stock was purchased during the
first quarter of 2000 under the share repurchase program begun in
February 1999, completing the $230 million program. In October 1999,
the Corporation's Board of Directors approved an additional share
repurchase program authorizing the repurchase of up to $200 million of
the Corporation's Common Stock. Under this new program, a total of
739,547 shares of Common Stock was purchased during the first quarter
of 2000. As of April 2, 2000, a total of 42,802,415 shares were held as
Treasury Stock and $168.9 million remained available for repurchases of
Common Stock under the repurchase program approved in October.
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS - FIRST QUARTER 2000 VS. FIRST QUARTER 1999
- -----------------------------------------------------------------
Consolidated net sales for the first quarter increased from $945.2 million in
1999 to $993.1 million in 2000, an increase of 5% from the prior year. The
higher sales primarily reflected an increased sales volume for core
confectionery and grocery products in North America resulting from strong
seasonal sales for Easter. The first quarter of 1999 included $29.3 million in
net sales related to the Corporation's pasta business which was divested in late
January 1999.
The consolidated gross margin decreased from 40.5% in 1999 to 39.1% in 2000.
Gross margin in 1999 benefited 1.7 percentage points primarily from the
inclusion in cost of sales of a one-time $12.5 million gain from revisions to
the Corporation's retiree medical plan, net of additional costs for supplemental
retirement contributions into the Employee Savings Stock Investment and
Ownership Plan. Excluding the one-time gain in 1999, the increase in gross
margin reflected decreased costs for certain major raw materials, primarily
cocoa, as well as improved manufacturing efficiencies. These cost decreases were
offset partially by higher freight and warehousing costs, and increased costs
for obsolete packaging and the disposal of aged inventory. Selling, marketing
and administrative expenses decreased by 5% in 2000, primarily reflecting the
divestiture of the Corporation's pasta business. Administrative expense in 2000
benefited from the inclusion of a one-time gain of $7.3 million arising from the
exchange of certain corporate aircraft. This gain was substantially offset by
higher administrative expenses and software amortization costs.
Net interest expense in the first quarter of 2000 was $.9 million below the
comparable period of 1999, primarily as a result of the interest rate swap and
forward agreements entered into in October 1999.
Net income for the first quarter was $71.2 million compared to $224.7 million in
1999, and net income per share - diluted was $.51 per share compared to $1.57
per share in the prior year. Prior year net income included an after-tax gain of
$165.0 million, or $1.15 per share - diluted, on the sale of the Corporation's
pasta business.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
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 quarter of 2000, the Corporation's cash and cash
equivalents decreased by $71.5 million. Cash and cash equivalents on hand at the
beginning of the period and cash provided from operations were sufficient to
repurchase $55.3 million of the Corporation's Common Stock, pay cash dividends
of $35.2 million, reduce short-term debt by $34.6 million and finance capital
expenditures and capitalized software additions of $31.7 million.
The ratio of current assets to current liabilities was 1.9:1 as of April 2,
2000, and 1.8:1 as of December 31, 1999. The Corporation's capitalization ratio
(total short-term and long-term debt as a percentage of stockholder's equity,
short-term and long-term debt) was 49% as of April 2, 2000, and 50% as of
December 31, 1999.
9
<PAGE>
As of April 2, 2000, the Corporation maintained a committed credit facility
agreement with a syndicate of banks in the amount of $500.0 million which could
be borrowed directly or used to support the issuance of commercial paper. The
Corporation has the option to increase the credit facility by $1.0 billion with
the concurrence of the banks. The Corporation also had lines of credit with
domestic and international commercial banks in the amount of approximately $25.0
million as of April 2, 2000 and December 31, 1999.
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 April 2, 2000, $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 April 2, 2000, the Corporation's principal capital commitments included
manufacturing capacity expansion, modernization and efficiency improvements. The
Corporation anticipates that capital expenditures will be in the range of $150
million to $170 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. Such expenditures will be financed with cash
provided from operations and short-term borrowings.
In July 1999, the Corporation entered into an operating lease agreement for an
amount not to exceed $65 million for the purpose of financing construction costs
of a warehouse and distribution facility located on land owned by the
Corporation near Hershey, Pennsylvania. Under the agreement, the lessor pays for
the construction costs and thereafter leases the facility to the Corporation.
The lease term is six years, including the construction period. The lease may be
extended at the Corporation's option for up to four renewal periods of five
years each. The lease provides for a substantial residual guarantee and includes
an option to purchase the facility at original cost. Inventory shipments into
the first phase of the distribution center began in May 2000.
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 April 2, 2000. 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
decreased from $11.1 million as of December 31, 1999, to $9.4 million as of
April 2, 2000. Market risk represents 10% of the estimated average fair value of
net commodity positions at four dates prior to the end of each period.
YEAR 2000 ISSUES
- ----------------
The Corporation completed its year 2000 testing and remediation programs in the
third quarter of 1999. No significant year 2000 problems have been encountered
with the Corporation's information technology (IT) and non-IT systems or with
the Corporation's major business partners.
10
<PAGE>
The total cost of testing and remediation of the Corporation's IT and non-IT
systems not being replaced by the integrated information system project was
approximately $6.0 million.
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. Many of the forward looking
statements contained in this document may be identified by the use of
forward-looking words such as "believe," "expect," "anticipate," "should,"
"planned," "estimated," and "potential" among others. Factors which could cause
results to differ include, but are not limited to: changes in the confectionery
and grocery 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; raw material pricing;
the Corporation's ability to fully remedy the problems and avoid the increased
costs encountered since implementing changes to the customer service,
warehousing, and order fulfillment processes and systems in the third quarter of
1999; the ability to restore customer service to historical levels; the effects
service levels and other factors have on future customer demand; and the ability
to complete construction and commence operations of new warehousing facilities
on schedule.
11
<PAGE>
PART II - OTHER INFORMATION
ITEMS 2, 3 AND 5 HAVE BEEN OMITTED AS NOT APPLICABLE.
ITEM 1 - LEGAL PROCEEDINGS
- --------------------------
In January 1999, the Corporation received a Notice of Proposed Deficiency
(Notice) from the Internal Revenue Service (IRS) related to the years 1989
through 1996. The most significant issue pertains to the Corporate Owned Life
Insurance (COLI) program which was implemented by the Corporation in 1989. The
IRS proposed an assessment for the disallowance of interest expense deductions
associated with the underlying life insurance policies. The total impact of the
disallowance was approximately $61.4 million, including interest as of April 2,
2000. The Corporation may be subject to additional assessments for federal and
state tax and interest payments for years 1997 and 1998. The Corporation
believes that it has fully complied with the tax law as it relates to its COLI
program. The Corporation filed a protest of the proposed deficiency with the
Appeals section of the IRS in April 1999 and continues to vigorously defend its
position on this matter. The Corporation has no other material pending legal
proceedings, other than ordinary routine litigation incidental to its business.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------
Hershey Foods Corporation's Annual Meeting of Stockholders was held on April 25,
2000. The following directors were elected by the holders of Common Stock and
Class B Common Stock, voting together without regard to class:
NAME VOTES FOR VOTES WITHHELD
---- --------- --------------
William H. Alexander 398,903,092 2,298,786
Robert H. Campbell 399,016,092 2,185,786
C. McCollister Evarts, M.D. 398,789,945 2,411,933
Bonnie Guiton Hill 399,009,539 2,192,339
John C. Jamison 399,040,045 2,161,833
Michael F. Pasquale 399,066,790 2,135,088
John M. Pietruski 399,039,887 2,161,991
Kenneth L. Wolfe 394,484,942 6,716,936
The following directors were elected by the holders of the Common Stock voting
as a class:
NAME VOTES FOR VOTES WITHHELD
---- --------- --------------
Allan Z. Loren 95,420,913 2,215,695
Mackey J. McDonald 95,433,072 2,203,526
Holders of the Common Stock and the Class B Common Stock voting together
approved the appointment of Arthur Andersen LLP as the independent public
accountants for 2000. Stockholders cast 399,257,159 votes FOR the appointment,
1,524,036 votes AGAINST the appointment and ABSTAINED from casting 420,683 votes
on the appointment of accountants.
No other matters were submitted for stockholder action.
12
<PAGE>
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
a) EXHIBITS
--------
The following items are attached and incorporated herein by reference:
Exhibit 12 - Statement showing computation of ratio of earnings to
fixed charges for the quarters ended April 2, 2000 and April 4, 1999.
Exhibit 27 - Financial Data Schedule for the period ended April 2, 2000
(required for electronic filing only).
b) REPORTS ON FORM 8-K
-------------------
A report on Form 8-K was filed January 4, 2000 announcing that the
Corporation's sales in December 1999 would be lower than expected and
that its earnings per share for the fiscal year ending December 31,
1999 might be below market expectations.
13
<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 MAY 10, 2000 /S/ WILLIAM F. CHRIST
------------ ----------------------------------
William F. Christ
Senior Vice President,
Chief Financial Officer and Treasurer
Date MAY 10, 2000 /S/ DAVID W. TACKA
------------ ---------------------------------
David W. Tacka
Corporate Controller and
Chief Accounting Officer
14
<PAGE>
EXHIBIT INDEX
Exhibit 12 - Computation of Ratio of Earnings to Fixed Charges
Exhibit 27 - Financial Data Schedule for the period ended April 2, 2000
(required for electronic filing only)
15
<PAGE>
EXHIBIT 12
HERSHEY FOODS CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(IN THOUSANDS OF DOLLARS EXCEPT FOR RATIOS)
(UNAUDITED)
FOR THE THREE MONTHS ENDED
--------------------------
APRIL 2, APRIL 4,
2000 1999
---------- --------
EARNINGS:
Income before income taxes $116,688 $341,579(a)
Add (deduct):
Interest on indebtedness 18,946 19,342
Portion of rents representative of the
interest factor (b) 3,847 3,117
Amortization of debt expense 122 121
Amortization of capitalized interest 1,059 806
-------- --------
Earnings as adjusted $140,662 $364,965
======== ========
FIXED CHARGES:
Interest on indebtedness $ 18,946 $ 19,342
Portion of rents representative of the
interest factor (b) 3,847 3,117
Amortization of debt expense 122 121
Capitalized interest --- 209
-------- -------
Total fixed charges $ 22,915 $ 22,789
======== ========
RATIO OF EARNINGS TO FIXED CHARGES 6.14 16.01
======== ========
NOTE:
(a) Includes a gain of $243.8 million on the sale of the Corporation's pasta
business.
(b) 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 BALANCE SHEET AS OF APRIL 2, 2000 AND
CONSOLIDATED STATEMENT OF INCOME FOR THE THREE MONTHS ENDED APRIL 2, 2000 AND IS
QUALIFIED IN ITS ENTIRETY TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000047111
<NAME> HERSHEY FOODS CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> APR-02-2000
<CASH> 46,558
<SECURITIES> 0
<RECEIVABLES> 313,465<F1>
<ALLOWANCES> 0
<INVENTORY> 618,774
<CURRENT-ASSETS> 1,168,274
<PP&E> 2,597,645
<DEPRECIATION> 1,084,223
<TOTAL-ASSETS> 3,232,453
<CURRENT-LIABILITIES> 628,451
<BONDS> 878,079
0
0
<COMMON> 179,950
<OTHER-SE> 899,805
<TOTAL-LIABILITY-AND-EQUITY> 3,232,453
<SALES> 993,115
<TOTAL-REVENUES> 993,115
<CGS> 605,097
<TOTAL-COSTS> 858,897
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 17,530
<INCOME-PRETAX> 116,688
<INCOME-TAX> 45,508
<INCOME-CONTINUING> 71,180
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 71,180
<EPS-BASIC> .51
<EPS-DILUTED> .51
<FN>
<F1>BALANCE IS NET OF RESERVES FOR DOUBTFUL ACCOUNTS AND CASH DISCOUNTS.
</FN>
</TABLE>