CONSOLIDATED STATEMENTS OF INCO
| CONSOLIDATED STATEMENTS OF INCOME (USD $) | ||||
| In Thousands, except Share data | 3 Months Ended
Oct. 04, 2009 | 3 Months Ended
Sep. 28, 2008 | 9 Months Ended
Oct. 04, 2009 | 9 Months Ended
Sep. 28, 2008 |
| Net Sales | $1,484,118 | $1,489,609 | $3,891,332 | $3,755,388 |
| Costs and Expenses | ||||
| Cost of sales | 895,020 | 988,380 | 2,408,716 | 2,495,196 |
| Selling, marketing and administrative | 301,466 | 272,401 | 874,632 | 788,962 |
| Business realignment and impairment charges, net | 8,008 | 8,877 | 58,750 | 34,748 |
| Total costs and expenses | 1,204,494 | 1,269,658 | 3,342,098 | 3,318,906 |
| Income before Interest and Income Taxes | 279,624 | 219,951 | 549,234 | 436,482 |
| Interest expense, net | 22,302 | 24,915 | 68,932 | 72,911 |
| Income before Income Taxes | 257,322 | 195,036 | 480,302 | 363,571 |
| Provision for income taxes | 95,299 | 70,498 | 171,087 | 134,321 |
| Net Income | $162,023 | $124,538 | $309,215 | $229,250 |
| Earnings Per Share - Basic - Common Stock | 0.73 | 0.56 | 1.39 | 1.03 |
| Earnings Per Share - Diluted - Common Stock | 0.71 | 0.54 | 1.35 | $1 |
| Average Shares Outstanding - Basic - Common Stock | 167,299 | 166,682 | 166,980 | 166,696 |
| Average Shares Outstanding - Diluted | 229,553 | 228,670 | 228,784 | 228,757 |
| Cash Dividends Paid Per Share | ||||
| Common Stock | 0.2975 | 0.2975 | 0.8925 | 0.8925 |
| Common Class B [Member] | ||||
| Costs and Expenses | ||||
| Earnings Per Share - Basic - Common Stock | 0.66 | 0.51 | 1.26 | 0.93 |
| Earnings Per Share - Diluted - Common Stock | 0.65 | 0.51 | 1.26 | 0.93 |
| Average Shares Outstanding - Basic - Common Stock | 60,709 | 60,784 | 60,710 | 60,798 |
| Cash Dividends Paid Per Share | ||||
| Common Stock | 0.2678 | 0.2678 | 0.8034 | 0.8034 |
CONSOLIDATED BALANCE SHEETS
| CONSOLIDATED BALANCE SHEETS (USD $) | ||
| In Thousands | Oct. 04, 2009
| Dec. 31, 2008
|
| Assets | ||
| Cash and cash equivalents | $119,253 | $37,103 |
| Accounts receivable - trade | 567,609 | 455,153 |
| Inventories | 559,318 | 592,530 |
| Deferred income taxes | 31,164 | 70,903 |
| Prepaid expenses and other | 185,293 | 189,256 |
| Total current assets | 1,462,637 | 1,344,945 |
| Property, Plant and Equipment, at cost | 3,348,034 | 3,437,420 |
| Less-accumulated depreciation and amortization | (1,935,216) | (1,978,471) |
| Net property, plant and equipment | 1,412,818 | 1,458,949 |
| Goodwill | 567,163 | 554,677 |
| Other Intangibles | 125,345 | 110,772 |
| Deferred Income Taxes | 24,776 | 13,815 |
| Other Assets | 180,368 | 151,561 |
| Total assets | 3,773,107 | 3,634,719 |
| Liabilities | ||
| Accounts Payable | 285,231 | 249,454 |
| Accrued liabilities | 546,425 | 504,065 |
| Accrued income taxes | 33,652 | 15,189 |
| Short-term debt | 227,389 | 483,120 |
| Current portion of long-term debt | 15,632 | 18,384 |
| Total current liabilities | 1,108,329 | 1,270,212 |
| Long-term Debt | 1,503,435 | 1,505,954 |
| Other Long-term Liabilities | 481,105 | 504,963 |
| Deferred Income Taxes | 42,721 | 3,646 |
| Total liabilities | 3,135,590 | 3,284,775 |
| Stockholders' Equity | ||
| Preferred Stock, shares issued: none in 2009 and 2008 | 0 | 0 |
| Common Stock, shares issued: 299,192,836 in 2009 and 299,190,836 in 2008 | 299,192 | 299,190 |
| Class B Common Stock, shares issued: 60,708,908 in 2009 and 60,710,908 in 2008 | 60,709 | 60,711 |
| Additional paid-in capital | 386,842 | 352,375 |
| Retained earnings | 4,087,572 | 3,975,762 |
| Treasury-Common Stock shares at cost:132,194,512 in 2009 and 132,866,673 in 2008 | (3,989,117) | (4,009,931) |
| Accumulated other comprehensive loss | (248,128) | (359,908) |
| The Hershey Company stockholders' equity | 597,070 | 318,199 |
| Noncontrolling interests in subsidiaries | 40,447 | 31,745 |
| Total stockholders' equity | 637,517 | 349,944 |
| Total liabilities and stockholders' equity | $3,773,107 | $3,634,719 |
PARENTHETICAL DATA FOR CONSOLID
| PARENTHETICAL DATA FOR CONSOLIDATED BALANCE SHEETS (USD $) | ||
| Oct. 04, 2009
| Dec. 31, 2008
| |
| STOCKHOLDERS' EQUITY | ||
| Preferred Stock, shares issued | 0 | 0 |
| Common Stock, shares issued | 299,192,836 | 299,190,836 |
| Class B Common Stock, shares issued | 60,708,908 | 60,710,908 |
| Treasury-Common Stock shares | 132,194,512 | 132,866,673 |
CONSOLIDATED STATEMENTS OF CASH
| CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $) | ||
| In Thousands | 9 Months Ended
Oct. 04, 2009 | 9 Months Ended
Sep. 28, 2008 |
| Cash Flows Provided from (Used by) Operating Activities | ||
| Net Income | $309,215 | $229,250 |
| Adjustments to Reconcile Net Income to Net Cash Provided from Operations | ||
| Depreciation and amortization | 138,874 | 190,762 |
| Stock-based compensation expense, net of tax of $15,793 and $9,892, respectively | 28,077 | 17,283 |
| Excess tax benefits from exercise of stock options | (3,002) | (769) |
| Deferred Income Taxes | 70,125 | 58,367 |
| Business realignment initiatives, net of tax of $29,429 and $33,529, respectively | 43,250 | 67,430 |
| Contributions to pension plans | (45,834) | (24,620) |
| Changes in assets and liabilities, net of effects from business acquisitions and divestitures | ||
| Accounts receivable - trade | (110,731) | (127,564) |
| Inventories | 17,894 | (62,809) |
| Accounts payable | 34,556 | 94,593 |
| Other assets and liabilities | 153,124 | (193,332) |
| Net Cash Flows Provided from Operating Activities | 635,548 | 248,591 |
| Cash Flows Provided from (Used by) Investing Activities | ||
| Capital Additions | (94,465) | (198,446) |
| Capitalized Software Additions | (12,416) | (12,672) |
| Proceeds from sales of property, plant and equipment | 4,907 | 77,180 |
| Business Acquisitions | (15,220) | 0 |
| Proceeds from divestiture | 0 | 1,960 |
| Net Cash Flows (Used by) Investing Activities | (117,194) | (131,978) |
| Cash Flows Provided from (Used by) Financing Activities | ||
| Net decrease in short-term debt | (255,287) | (137,575) |
| Long-term borrowings | 0 | 247,845 |
| Repayment of long-term debt | (6,474) | (3,281) |
| Cash dividends paid | (197,405) | (197,218) |
| Exercise of stock options | 21,952 | 34,635 |
| Excess tax benefits from exercise of stock options | 3,002 | 769 |
| Contributions from noncontrolling interests in subsidiaries | 7,322 | 0 |
| Repurchase of Common Stock | (9,314) | (55,354) |
| Net Cash Flows (Used by) Financing Activities | (436,204) | (110,179) |
| Increase in Cash and Cash Equivalents | 82,150 | 6,434 |
| Cash and cash equivalents,beginning of period | 37,103 | 129,198 |
| Cash and Cash Equivalents, end of period | 119,253 | 135,632 |
| Interest Paid | 91,508 | 87,672 |
| Income Taxes Paid | $140,778 | $115,977 |
1_PARENTHETICAL DATA FOR CONSOL
| PARENTHETICAL DATA FOR CONSOLIDATATED STATEMENTS OF CASH FLOWS (USD $) | ||
| In Thousands | 9 Months Ended
Oct. 04, 2009 | 9 Months Ended
Sep. 28, 2008 |
| Cash Flows Provided from (Used by) Operating Activities | ||
| Tax on Stock Based Compensation Expense | $15,793 | $9,892 |
| Tax on Business Realignment Initiatives | $29,429 | $33,529 |
BASIS OF PRESENTATION
| BASIS OF PRESENTATION | |
| 9 Months Ended
Oct. 04, 2009 USD / shares | |
| Notes to Financial Statements [Abstract] | |
| BASIS OF PRESENTATION | 1.BASIS OF PRESENTATION Our unaudited consolidated financial statements provided in this report include the accounts of the Company and our majority-owned subsidiaries and entities in which we have a controlling financial interest after the elimination of intercompany accounts and transactions.We have a controlling financial interest if we own a majority of the outstanding voting common stock and noncontrolling stockholders do not have substantive participating rights, or we have significant control over an entity through contractual or economic interests in which we are the primary beneficiary. We prepared these statements in accordance with the instructions to Form 10-Q.These statements do not include all of the information and footnotes required by U.S. generally accepted accounting principles (GAAP) for complete financial statements. We included all adjustments (consisting only of normal recurring accruals) which we believe were considered necessary for a fair presentation.We reclassified certain prior year amounts to conform to the 2009 presentation.Operating results for the nine months ended October4, 2009 may not be indicative of the results that may be expected for the year ending December31, 2009, because of the seasonal effects of our business. For more information, refer to the consolidated financial statements and notes included in our 2008 Annual Report on Form10-K. In May 2009, the Financial Accounting Standards Board (FASB) issued a new standard effective for both interim and annual financial statements ending after June 15, 2009.It establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued.In our second quarter of 2009, we adopted this new standard which did not have a material impact on our financial accounting or disclosure. We evaluated all subsequent events through the date and time our financial statements were issued on November 12, 2009.No subsequent events occurred during this reporting period that require recognition or disclosure in this filing. |
BUSINESS ACQUISITIONS AND DIVES
| BUSINESS ACQUISITIONS AND DIVESTITURES | |
| 9 Months Ended
Oct. 04, 2009 USD / shares | |
| Notes to Financial Statements [Abstract] | |
| BUSINESS ACQUISITIONS AND DIVESTITURES | 2.BUSINESS ACQUISITIONS AND DIVESTITURES In January 2008, our Brazilian subsidiary, Hershey do Brasil, entered into a cooperative agreement with Pandurata Alimentos LTDA (Bauducco), a leading manufacturer of baked goods in Brazil whose primary brand is Bauducco.The arrangement with Bauducco leverages Bauduccos strong sales and distribution capabilities for our products throughout Brazil.Under this agreement we manufacture and market, and they sell and distribute our products.In the first quarter of 2008, we received approximately $2.0 million in cash and recorded an other intangible asset of $13.7 million associated with the cooperative agreement with Bauducco in exchange for our conveying to Bauducco a 49% interest in Hershey do Brasil.We maintain a 51% controlling interest in Hershey do Brasil. In March 2009, our Company completed the acquisition of the Van Houten Singapore consumer business.The acquisition from Barry Callebaut, AG provides our Company with an exclusive license of the Van Houten brand name and related trademarks in Asia and the Middle East for the retail and duty free distribution channels.The purchase price for the acquisition of Van Houten Singapore and the licensing agreement was approximately $15.2 million. Results subsequent to the acquisition dates were included in the consolidated financial statements.Had the results of the acquisitions been included in the consolidated financial statements for each of the periods presented, the effect would not have been material. |
NONCONTROLLING INTERESTS IN SUB
| NONCONTROLLING INTERESTS IN SUBSIDIARIES | |
| 9 Months Ended
Oct. 04, 2009 USD / shares | |
| Notes to Financial Statements [Abstract] | |
| NONCONTROLLING INTEREST IN SUBSIDIARIES | 3.NONCONTROLLING INTERESTS IN SUBSIDIARIES As of January 1, 2009, the Company adopted a FASB accounting standard that establishes new accounting and reporting requirements for the noncontrolling interest in a subsidiary (formerly known as minority interest) and for the deconsolidation of a subsidiary and requires the noncontrolling interest to be reported as a component of equity.In addition, changes in a parents ownership interest while the parent retains its controlling interest will be accounted for as equity transactions, and any retained noncontrolling equity investment upon the deconsolidation of a subsidiary will be measured initially at fair value. In May 2007, we entered into an agreement with Godrej Beverages and Foods, Ltd., one of Indias largest consumer goods, confectionery and food companies, to manufacture and distribute confectionery products, snacks and beverages across India.Under the agreement, we own a 51% controlling interest in Godrej Hershey Ltd.In January 2009, the Company contributed cash of approximately $8.7 million to Godrej Hershey Ltd. and owners of the noncontrolling interests in Godrej Hershey Ltd. contributed approximately $7.3 million.The ownership interest percentages in Godrej Hershey Ltd. did not change significantly as a result of these contributions.The noncontrolling interests in Godrej Hershey Ltd. are included in the equity section of the Consolidated Balance Sheets. We also own a 51% controlling interest in Hershey do Brasil under the cooperative agreement with Bauducco.The noncontrolling interest in Hershey do Brasil is included in the equity section of the Consolidated Balance Sheets. The increase in noncontrolling interests in subsidiaries from $31.7 million as of December 31, 2008 to $40.4 million as of October 4, 2009 reflected the $7.3 million contribution from the noncontrolling interests in Godrej Hershey Ltd. and the impact of currency translation adjustments, partially offset by a reduction resulting from the recording of the share of losses pertaining to the noncontrolling interests.The share of losses pertaining to the noncontrolling interests in subsidiaries was $2.7 million for the nine months ended October 4, 2009 and $4.1 million for the nine months ended September 28, 2008.This was reflected in selling, marketing and administrative expenses |
STOCK COMPENSATION PLAN
| STOCK COMPENSATION PLAN | |
| 9 Months Ended
Oct. 04, 2009 USD / shares | |
| Notes to Financial Statements [Abstract] | |
| STOCK COMPENSATION PLANS | 4.STOCK COMPENSATION PLANS The Hershey Company Equity and Incentive Compensation Plan (EICP) is the plan under which grants using shares for compensation and incentive purposes are made.The following table summarizes our stock compensation costs: For the Three Months Ended For the Nine Months Ended October 4, 2009 September 28, 2008 October 4, 2009 September 28, 2008 (in millions of dollars) Total compensation amount charged against income for stock options, performance stock units (PSUs) and restricted stock units $12.0 $8.9 $43.5 $26.7 Total income tax benefit recognized in the Consolidated Statements of Income for share-based compensation $ 4.6 $3.2 $15.7 $ 9.6 The increase in share-based compensation expense for the third quarter and first nine months of 2009 resulted from the higher performance expectations for our PSU awards. We estimated the fair value of each stock option grant on the date of the grant using a Black-Scholes option-pricing model and the weighted-average assumptions set forth in the following table: For the Nine Months Ended October 4, 2009 September 28, 2008 Dividend yield 3.3% 2.4% Expected volatility 21.6% 18.1% Risk-free interest rates 2.1% 3.1% Expected lives in years 6.6 6.6 Stock Options A summary of the status of our stock options as of October4, 2009, and the change during 2009 is presented below: For the Nine Months Ended October 4, 2009 Stock Options Shares Weighted-Average Exercise Price Weighted-Average Remaining Contractual Term Outstanding at beginning of year 16,671,643 $42.08 6.6 years Granted 3,160,470 $34.92 Exercised (792,751) $27.69 Forfeited (402,506) $44.40 Outstanding as of October 4, 2009 18,636,856 $41.43 6.4 years Options exercisable as of October 4, 2009 10,968,359 $43.34 4.8 years For the Nine Months Ended October 4, 2009 September 28, 2008 Weighted-average fair value of options granted (per share) $5.31 $6.20 Intrinsic value of options exercised (in millions of dollars) $8.9 $8.3 As of October 4, 2009, the aggregate intrinsic value of options outstanding was $56.0million and the aggregate intrinsic value of options exercisable was $30.3million. As of October 4, 2009, there was $30.9million of total unrecognized compensation cost related to non-vested stock option compensation arrangements granted under our stock option plans.That cost is expected to be recognized over a weighted-average period of 2.4 years. Performance Stock Units and Restricted Stock Units A summary of the status of our performance stock units and restricted stock units as of October4, 2009, and the change during 2009 is presented below: Performance Stock Units and Restricted Stock Units For the Nine Months Ended October 4, 2009 Weighted-average grant date fair value for equity awards or market value for liability awards Out |
INTEREST EXPENSE
| INTEREST EXPENSE | |
| 9 Months Ended
Oct. 04, 2009 USD / shares | |
| Notes to Financial Statements [Abstract] | |
| INTEREST EXPENSE | 5.INTEREST EXPENSE Net interest expense consisted of the following: For the Nine Months Ended October 4, 2009 September 28, 2008 (in thousands of dollars) Interest expense $ 71,693 $ 78,775 Interest income (693 ) (1,305 ) Capitalized interest (2,068 ) (4,559 ) Interest expense, net $ 68,932 $ 72,911 |
BUSINESS REALIGNMENT INITIATIVE
| BUSINESS REALIGNMENT INITIATIVES | |
| 9 Months Ended
Oct. 04, 2009 USD / shares | |
| Notes to Financial Statements [Abstract] | |
| BUSINESS REALIGNMENT INITIATIVES | 6.BUSINESS REALIGNMENT INITIATIVES In February 2007, we announced a comprehensive, three-year supply chain transformation program (the global supply chain transformation program or GSCT) and, in December 2007, we initiated a business realignment program associated with our business in Brazil (together, the 2007 business realignment initiatives).In December 2008, we approved a modest expansion in the scope of the global supply chain transformation program to include the closure of two subscale manufacturing facilities of Artisan Confections Company, a wholly-owned subsidiary, and consolidation of the associated production into existing U.S. facilities, along with rationalization of other select portfolio items.The affected facilities are located in Berkeley and San Francisco, California.The additional business realignment charges related to the expansion in scope will be recorded in 2009 and include severance for approximately 150 impacted employees. The original estimated pre-tax cost of the program announced in February 2007 was from $525 million to $575 million over three years.The total included from $475 million to $525 million in business realignment costs and approximately $50 million in project implementation costs.The increase in scope approved in December 2008 increased the total expected cost by about $25 million.In addition, the current trends of employee lump sum withdrawals from the defined benefit pension plans are expected to result in non-cash pension settlement losses from $30 million to $40 million during the remainder of 2009 and 2010, in addition to the $36.7 million recorded during the first nine months of 2009.Therefore, we continue to expect total pre-tax charges and non-recurring project implementation costs of $640 million to $665 million for the GSCT.Total costs of $72.7 million were recorded during the first nine months of 2009, costs of $130.0 million were recorded in 2008 and costs of $400.0 million were recorded in 2007 for this program. In an effort to improve the performance of our business in Brazil, in January 2008 Hershey do Brasil entered into a cooperative agreement with Bauducco.Business realignment and impairment charges of $4.9 million were recorded in 2008. Charges (credits) associated with business realignment initiatives recorded during the three-month and nine-month periods ended October4, 2009 and September28, 2008 were as follows: For the Three Months Ended For the Nine Months Ended October 4, 2009 September 28, 2008 October 4, 2009 September 28, 2008 (in thousands of dollars) Cost of sales: 2007 business realignment initiatives $1,325 $19,965 $8,492 $60,146 Selling, marketing and administrative: 2007 business realignment initiatives 1,683 2,188 5,437 6,065 Business realignment and impairment charges, net: Global supply chain transformation program: Losses (gains) on sale of fixed assets 233 (6,557) Fixed asset impairments and plant closure expenses 1,584 1,755 |
EARNINGS PER SHARE
| EARNINGS PER SHARE | |
| 9 Months Ended
Oct. 04, 2009 USD / shares | |
| Notes to Financial Statements [Abstract] | |
| EARNINGS PER SHARE | 7.EARNINGS PER SHARE We compute Basic and Diluted Earnings Per Share based on the weighted-average number of shares of the Common Stock and the Class B Common Stock outstanding as follows: For the Three Months Ended For the Nine Months Ended October 4, 2009 September 28, 2008 October 4, 2009 September 28, 2008 (in thousands except per share amounts) Net income $162,023 $124,538 $309,215 $229,250 Weighted-average shares - Basic Common Stock 167,299 166,682 166,980 166,696 Class B Common Stock 60,709 60,784 60,710 60,798 Total weighted-average shares - Basic 228,008 227,466 227,690 227,494 Effect of dilutive securities: Employee stock options 1,116 904 785 939 Performance and restricted stock units 429 300 309 324 Weighted-average shares - Diluted 229,553 228,670 228,784 228,757 Earnings Per Share - Basic Class B Common Stock $.66 $.51 $1.26 $.93 Common Stock $.73 $.56 $1.39 $1.03 Earnings Per Share - Diluted Class B Common Stock $.65 $.51 $1.26 $.93 Common Stock $.71 $.54 $1.35 $1.00 The Class B Common Stock is convertible into Common Stock on a share for share basis at any time.The calculation of earnings per share-diluted for the Class B Common Stock was performed using the two-class method and the calculation of earnings per share-diluted for the Common Stock was performed using the if-converted method. |
DERIVATIVE INSTRUMENTS AND HEDG
| DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES | |
| 9 Months Ended
Oct. 04, 2009 USD / shares | |
| Notes to Financial Statements [Abstract] | |
| DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES | 8.DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES We classify derivatives as assets or liabilities on the balance sheet. Accounting for the change in fair value of the derivative depends on: whether the instrument qualifies for, and has been designated as, a hedging relationship; and the type of hedging relationship. There are three types of hedging relationships: cash flow hedge; fair value hedge; and hedge of foreign currency exposure of a net investment in a foreign operation. As of October 4, 2009 and December31, 2008, we classified all of our derivative instruments as cash flow hedges. The amount of net losses on cash flow hedging derivatives, including foreign exchange forward contracts, interest rate swap agreements and commodities futures contracts, expected to be reclassified into earnings in the next twelve months was approximately $10.7 million after tax as of October4, 2009.This amount was primarily associated with commodities futures contracts. For more information, refer to the consolidated financial statements and notes included in our 2008 Annual Report on Form 10-K. Objectives, Strategies and Accounting Policies Associated with Derivative Instruments We use certain derivative instruments, from time to time, to manage interest rate, foreign currency exchange rate and commodity market price risk exposures. We enter into interest rate swap agreements and foreign currency forward contracts and options for periods consistent with their related underlying exposures. We enter into commodities futures and options contracts for varying periods. Our commodities futures and options contracts are effective as hedges of market price risks associated with anticipated raw material purchases, energy requirements and transportation costs. We do not hold or issue derivative instruments for trading purposes and are not a party to any instruments with leverage or prepayment features. In entering into these contracts, we have assumed the risk that might arise from the possible inability of counterparties to meet the terms of their contracts.We mitigate this risk by performing financial assessments prior to contract execution, conducting periodic evaluations of counterparty performance and maintaining a diverse portfolio of qualified counterparties.We do not expect any significant losses from counterparty defaults. Interest Rate Swaps In order to minimize financing costs and to manage interest rate exposure, from time to time, we enter into interest rate swap agreements. We include gains and losses on interest rate swap agreements in other comprehensive income. We recognize gains and losses on interest rate swap agreements as an adjustment to interest expense in the same period as the hedged interest payments affect earnings.We classify cash flows from interest rate swap agreements as net cash provided from operating activities on the Consolidated Statements of Cash Flows.Our risk related to interest rate swap agreements is limited to the cost of replacing the agreements at prevailing market rates. Foreign Exchange Forward Contracts We enter into foreign exchange forward contracts to hed |
COMPREHENSIVE INCOME
| COMPREHENSIVE INCOME | |
| 9 Months Ended
Oct. 04, 2009 USD / shares | |
| Notes to Financial Statements [Abstract] | |
| COMPREHENSIVE INCOME | 9.COMPREHENSIVE INCOME A summary of the components of comprehensive income (loss) is as follows: For the Three Months Ended October 4, 2009 Pre-Tax Amount Tax (Expense) Benefit After-Tax Amount (in thousands of dollars) Net income $162,023 Other comprehensive income (loss): Foreign currency translation adjustments $10,674 $ 10,674 Pension and post-retirement benefit plans 16,615 (6,789) 9,826 Cash flow hedges: Gains on cash flow hedging derivatives 69,402 (27,449) 41,953 Reclassification adjustments (15,697) 6,167 (9,530) Total other comprehensive income $80,994 $(28,071) 52,923 Comprehensive income $214,946 For the Three Months Ended September 28, 2008 Pre-Tax Amount Tax (Expense) Benefit After-Tax Amount (in thousands of dollars) Net income $124,538 Other comprehensive income (loss): Foreign currency translation adjustments $(17,153) $ (17,153) Pension and post-retirement benefit plans 4,438 (1,817) 2,621 Cash flow hedges: Losses on cash flow hedging derivatives (62,646) 22,090 (40,556) Reclassification adjustments (10,365) 3,737 (6,628) Total other comprehensive loss $(85,726) $24,010 (61,716) Comprehensive income $62,822 For the Nine Months Ended October 4, 2009 Pre-Tax Amount Tax (Expense) Benefit After-Tax Amount (in thousands of dollars) Net income $309,215 Other comprehensive income (loss): Foreign currency translation adjustments $27,278 $ 27,278 Pension and post-retirement benefit plans 64,713 (25,495) 39,218 Cash flow hedges: Gains on cash flow hedging derivatives 82,274 (31,100) 51,174 Reclassification adjustments (9,716) 3,826 (5,890) Total other comprehensive income $164,549 $(52,769) 111,780 Comprehensive income $420,995 For the Nine Months Ended September 28, 2008 Pre-Tax Amount Tax (Expense) Benefit After-Tax Amount (in thousands of dollars) Net income $229,250 Other comprehensive income (loss): Foreign currency translation adjustments $(17,248) $ (17,248) Pension and post-retirement benefit plans 9,362 (3,778) 5,584 Cash flow hedges: Gains on cash flow hedging derivatives 34,654 (12,930) 21,724 Reclassification adjustments (39,329) 14,189 (25,140) Total other comprehensive loss $(12,561) $(2,519) (15,080) Comprehensive income $214,170 The components of accumulated other comprehensive income (loss) as shown on the Consolidated Balance Sheets are as follows: October 4, 2009 December 31, 2008 (in thousands of dollars) Foreig |
INVENTORIES
| INVENTORIES | |
| 9 Months Ended
Oct. 04, 2009 USD / shares | |
| Notes to Financial Statements [Abstract] | |
| INVENTORIES | 10.INVENTORIES We value the majority of our inventories under the last-in, first-out (LIFO) method and the remaining inventories at the lower of first-in, first-out (FIFO) cost or market. Inventories were as follows: October 4, 2009 December 31, 2008 (in thousands of dollars) Raw materials $254,801 $215,309 Goods in process 90,300 95,986 Finished goods 410,128 419,016 Inventories at FIFO 755,229 730,311 Adjustment to LIFO (195,911) (137,781) Total inventories $559,318 $592,530 The increase in raw material inventories as of October 4, 2009 resulted from the timing of deliveries to support manufacturing requirements and higher prices in 2009.The decrease in finished goods inventories was primarily associated with initiatives to improve sales forecasting and inventory planning, the impact of the global supply chain transformation program and seasonal sales patterns. |
SHORT-TERM DEBT
| SHORT-TERM DEBT | |
| 9 Months Ended
Oct. 04, 2009 USD / shares | |
| Notes to Financial Statements [Abstract] | |
| SHORT-TERM DEBT | 11.SHORT-TERM DEBT As a source of short-term financing, we utilize commercial paper or bank loans with an original maturity of three months or less. Our five-year unsecured revolving credit agreement expires in December 2012. The credit limit is $1.1 billion with an option to borrow an additional $400 million with the concurrence of the lenders. The unsecured revolving credit agreement contains certain financial and other covenants, customary representations, warranties and events of default. As of October4, 2009, we complied with all covenants pertaining to the credit agreement. There were no significant compensating balance agreements that legally restricted these funds. For more information, refer to the consolidated financial statements and notes included in our 2008 Annual Report on Form 10-K. |
LONG-TERM DEBT
| LONG-TERM DEBT | |
| 9 Months Ended
Oct. 04, 2009 USD / shares | |
| Notes to Financial Statements [Abstract] | |
| LONG-TERM DEBT | 12.LONG-TERM DEBT In May 2006, we filed a shelf registration statement on Form S-3 that registered an indeterminate amount of debt securities.This registration statement was effective immediately upon filing under Securities and Exchange Commission regulations governing well-known seasoned issuers (the WKSI Registration Statement).In March 2008, the Company issued $250 million of 5.0% Notes due April1, 2013 under the WKSI Registration Statement.The net proceeds of this debt issuance were used to repay a portion of the Companys outstanding indebtedness under its short-term commercial paper program.The May 2006 WKSI Registration Statement expired in May 2009.Accordingly, in May 2009, we filed a new registration statement on Form S-3 to replace the May 2006 WKSI Registration Statement.The May 2009 WKSI Registration Statement registered an indeterminate amount of debt securities and was effective immediately. |
FINANCIAL INSTRUMENTS
| FINANCIAL INSTRUMENTS | |
| 9 Months Ended
Oct. 04, 2009 USD / shares | |
| Notes to Financial Statements [Abstract] | |
| FINANCIAL INSTRUMENTS | 13.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 October4, 2009 and December31, 2008, because of the relatively short maturity of these instruments. The carrying value of long-term debt, including the current portion, was $1,519.1million as of October4, 2009, compared with a fair value of $1,686.5million, an increase of $167.4million over the carrying value, based on quoted market prices for the same or similar debt issues. Interest Rate Swaps In order to minimize financing costs and to manage interest rate exposure, the Company, from time to time, enters into interest rate swap agreements.In March 2009, the Company entered into forward starting interest rate swap agreements to hedge interest rate exposure related to the anticipated $250 million of term financing expected to be executed during 2011 to repay $250 million of 5.3% Notes maturing in September 2011.The weighted-average fixed rate on the forward starting swap agreements was 3.5%.The fair value of interest rate swap agreements was a net asset of $3.5 million as of October 4, 2009.The Companys risk related to interest rate swap agreements is limited to the cost of replacing such agreements at prevailing market rates.For more information see Note 8. Derivative Instruments and Hedging Activities. Foreign Exchange Forward Contracts The following table summarizes our foreign exchange activity: October 4, 2009 Contract Amount Primary Currencies (in millions of dollars) Foreign exchange forward contracts to purchase foreign currencies $4.4 Euros Foreign exchange forward contracts to sell foreign currencies $111.8 Canadian dollars Our foreign exchange forward contracts mature in 2009 and 2010.For more information, see Note 8. Derivative Instruments and Hedging Activities. |
FAIR VALUE ACCOUNTING
| FAIR VALUE ACCOUNTING | |
| 9 Months Ended
Oct. 04, 2009 USD / shares | |
| Notes to Financial Statements [Abstract] | |
| FAIR VALUE ACCOUNTING | 14. FAIR VALUE ACCOUNTING We follow a fair value measurement hierarchy to price certain assets or liabilities.The fair value is determined based on inputs or assumptions that market participants would use in pricing the asset or liability.These assumptions consist of (1) observable inputs - market data obtained from independent sources, or (2) unobservable inputs - market data determined using the companys own assumptions about valuation. We prioritize the inputs to valuation techniques, with the highest priority being given to Level 1 inputs and the lowest priority to Level 3 inputs, as defined below: Level 1 Inputs quoted prices in active markets for identical assets or liabilities; Level 2 Inputs quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar instruments in markets that are not active; inputs other than quoted prices that are observable; and inputs that are derived from or corroborated by observable market data by correlation; and Level 3 Inputs unobservable inputs used to the extent that observable inputs are not available.These reflect the entitys own assumptions about the assumptions that market participants would use in pricing the asset or liability. We use certain derivative instruments, from time to time, to manage interest rate, foreign currency exchange rate and commodity market price risk exposures, all of which are recorded at fair value based on quoted market prices or rates. A summary of our cash flow hedging derivative assets and liabilities measured at fair value on a recurring basis as of October4, 2009, is as follows: Description Fair Value as of October 4, 2009 Quoted Prices in Active Markets of Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) (in thousands of dollars) Assets Cash flow hedging derivatives $35,696 $26,409 $9,287 $ Liabilities Cash flow hedging derivatives $23,915 $17,468 $6,447 $ As of October 4, 2009, cash flow hedging derivative Level 1 assets were associated with the fair value of commodity options contracts.As of October 4, 2009, cash flow hedging derivative Level 1 liabilities were related to cash transfers payable on commodities futures contracts reflecting the change in quoted market prices on the last trading day for the period.As of October 4, 2009, cash flow hedging derivative Level 2 assets were related to the fair value of interest rate swap agreements and foreign exchange forward contracts with gains.Cash flow hedging Level 2 liabilities were related to the fair value of foreign exchange forward contracts with losses.For more information, see Note 8. Derivative Instruments and Hedging Activities. |
INCOME TAXES
| INCOME TAXES | |
| 9 Months Ended
Oct. 04, 2009 USD / shares | |
| Notes to Financial Statements [Abstract] | |
| INCOME TAXES | 15.INCOME TAXES The number of years with open tax audits varies depending on the tax jurisdiction.Our major taxing jurisdictions include the United States (federal and state) and Canada.During the second quarter of 2009, the U.S. Internal Revenue Service completed its audit of our U.S. income tax returns for 2005 and 2006, resulting in the resolution of tax contingencies associated with the 2004, 2005 and 2006 tax years. |
PENSION AND OTHER POST-RETIREME
| PENSION AND OTHER POST-RETIREMENT BENEFIT PLANS | |
| 9 Months Ended
Oct. 04, 2009 USD / shares | |
| Notes to Financial Statements [Abstract] | |
| PENSION AND OTHER POST-RETIREMENT BENEFIT PLANS | 16.PENSION AND OTHER POST-RETIREMENT BENEFIT PLANS Components of net periodic benefits (income) cost consisted of the following: Pension Benefits Other Benefits For the Three Months Ended October 4, 2009 September 28, 2008 October 4, 2009 September 28, 2008 (in thousands of dollars) Service cost $6,471 $7,364 $382 $438 Interest cost 14,788 14,902 4,682 5,078 Expected return on plan assets (17,822) (26,910) Amortization of prior service cost 302 322 (118) (115) Recognized net actuarial loss (gain) 8,297 (134) (40) Administrative expenses 40 107 Net periodic benefits cost (income) 12,076 (4,349) 4,906 5,401 Special termination benefits (2) Settlement losses 6,181 4,458 Total amountreflected in earnings $18,257 $107 $4,906 $5,401 We made contributions of $43.8million and $5.7million to the pension plans and other benefits plans, respectively, during the third quarter of 2009.In the third quarter of 2008, we made contributions of $20.8million and $6.0million to our pension and other benefits plans, respectively.The contributions in 2009 primarily reflected voluntary contributions to our qualified pension plans to improve the funded status and the 2008 contributions primarily reflected benefit payments from our non-qualified pension plans and post-retirement benefit plans. In the third quarter of 2009, there was net periodic pension benefits expense of $12.1million, compared with net periodic pension benefits income of $4.3million in the third quarter of 2008.The net periodic pension benefits expense was primarily due to the significant decline in the value of pension assets during 2008 reflecting unprecedented volatility and deterioration in financial market and economic conditions.The special termination benefits and settlement losses recorded in the third quarter of 2009 and 2008 primarily related to the 2007 business realignment initiatives. Pension Benefits Other Benefits For the Nine Months Ended October 4, 2009 September 28, 2008 October 4, 2009 September 28, 2008 (in thousands of dollars) Service cost $19,360 $22,128 $1,146 $1,315 Interest cost 44,070 44,801 14,012 15,248 Expected return on plan assets (53,204) (80,818) Amortization of prior service cost 903 965 (356) (343) Recognized net actuarial loss (gain) 24,988 (421) (113) (2) Administrative expenses 227 286 Net periodic benefits cost (income) 36,344 (13,059) 14,689 16,218 Special termination benefits 145 Settlement losses 36,736 9,301 Total amount reflected in earnings $73,080 $(3,613) $14,689 $16,218 We made contributions of $45.8million and $17.9million to the pension plans and other benefits plans, respectively, during the first nine mon |
SHARE REPURCHASES
| SHARE REPURCHASES | |
| 9 Months Ended
Oct. 04, 2009 USD / shares | |
| Notes to Financial Statements [Abstract] | |
| SHARE REPURCHASES | 17.SHARE REPURCHASES Repurchases and Issuances of Common Stock A summary of cumulative share repurchases and issuances is as follows: For the Nine Months Ended October 4, 2009 Shares Dollars (in thousands) Shares repurchased in the open market under pre-approved share repurchase programs $ Shares repurchased to replace Treasury Stock issued for stock options and incentive compensation 252 9,314 Total share repurchases 252 9,314 Shares issued for stock options and incentive compensation (924) (30,128) Net change (672) $(20,814) In December 2006, our Board of Directors approved a $250.0 million share repurchase program.As of October4,2009, $100.0 million remained available for repurchases of Common Stock under this program. |
PENDING ACCOUNTING PRONOUNCEMEN
| PENDING ACCOUNTING PRONOUNCEMENTS | |
| 9 Months Ended
Oct. 04, 2009 USD / shares | |
| Notes to Financial Statements [Abstract] | |
| PENDING ACCOUNTING PRONOUNCEMENTS | 18.PENDING ACCOUNTING PRONOUNCEMENTS In June 2009, the FASB issued Statement of Financial Accounting Standards No. 166, Accounting for Transfers of Financial Assetsan amendment of FASB Statement No. 140 (SFAS No. 166). SFAS No. 166 addresses how information should be provided about transfers of financial assets; the effects of a transfer on a companys financial position, performance and cash flows; and a transferors continuing involvement in transferred financial assets. SFAS No. 166 removes the concept of a qualifying special-purpose entity and modifies or eliminates certain other provisions related to transfers of financial assets. It also establishes additional requirements, including a requirement for enhanced disclosures to provide financial statement users with greater transparency. In June 2009, the FASB issued Statement of Financial Accounting Standards No. 167, Amendments to FASB Interpretation No. 46(R) (SFAS No. 167). SFAS No. 167 amends certain requirements of FASB Interpretation No. 46 (revised December 2003), Consolidation of Variable Interest Entities, to improve financial reporting by enterprises involved with variable interest entities, and to provide more relevant and reliable information to users of financial statements. SFAS Nos. 166 and 167 are effective for us as of January 1, 2010 and we are currently evaluating the impact on our consolidated financial statements upon adoption. In August 2009, the FASB issued Accounting Standards Update No. 2009-05, Fair Value Measurements and Disclosures (Topic 820), Measuring Liabilities at Fair Value(ASU 2009-05).ASU 2009-05 provides clarification to entities that measure liabilities at fair value under circumstances where a quoted price in an active market is not available.ASU 2009-05 is effective for us in the fourth quarter of 2009.We believe there will be no significant impact on our consolidated financial statements upon adoption. |
Document Information
| Document Information | |
| 9 Months Ended
Oct. 04, 2009 USD / shares | |
| Document Information [Line Items] | |
| Document Type | 10-Q |
| Amendment Flag | false |
| Document Period End Date | 2009-10-04 |
Entity Information
| Entity Information (USD $) | ||
| 9 Months Ended
Oct. 04, 2009 | Jun. 29, 2008
| |
| Entity Information [Line Items] | ||
| Entity Registrant Name | HERSHEY CO | |
| Entity Central Index Key | 0000047111 | |
| Current Fiscal Year End Date | --12-31 | |
| Entity Well-known Seasoned Issuer | Yes | |
| Entity Voluntary Filers | No | |
| Entity Current Reporting Status | Yes | |
| Entity Filer Category | Large Accelerated Filer | |
| Entity Public Float | $4,971,158,971 | |
| Entity Common Stock, Shares Outstanding | 227,707,232 |