UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
|X| OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
|_| SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ..... TO .....
REGISTRANT, STATE OF INCORPORATION,
ADDRESS AND TELEPHONE NUMBER
----------------------------
HERSHEY FOODS CORPORATION
Commission I.R.S. Employer
File No. (a Delaware Corporation Identification No.
-------- 100 Crystal A Drive ------------------
1-183 Hershey, Pennsylvania 17033 23-0691590
(717) 534-6799
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
Name of each exchange on
Title of each class which registered
------------------- --------------------------
Common Stock, one dollar par value New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Class B Common Stock, one dollar par value
(TITLE OF CLASS)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes |X| No |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |_|
State the aggregate market value of the voting stock held by non-affiliates
of the Registrant as of a specified date within 60 days prior to the date of
filing.
Common Stock, one dollar par value -- $4,168,640,981 as of February 28,
2000.
Class B Common Stock, one dollar par value -- $6,084,926 as of February 28,
2000. While the Class B Common Stock is not listed for public trading on
any exchange or market system, shares of that class are convertible into
shares of Common Stock at any time on a share-for-share basis. The market
value indicated is calculated based on the closing price of the Common
Stock on the New York Stock Exchange on February 28, 2000.
Indicate the number of shares outstanding of each of the Registrant's
classes of common stock as of the latest practicable date.
Common Stock, one dollar par value -- 107,798,756 shares, as of February
28, 2000.
Class B Common Stock, one dollar par value -- 30,443,908 shares, as of
February 28, 2000.
DOCUMENTS INCORPORATED BY REFERENCE
The Corporation's Annual Report to Stockholders for the year ended December
31, 1999 is included as Appendix A to the Corporation's Proxy Statement for the
Corporation's 2000 Annual Meeting of Stockholders (the "Proxy Statement") and is
incorporated by reference into Part II and filed as Exhibit 13 hereto. Portions
of the Proxy Statement are incorporated by reference herein into Part III.
PART I
ITEM 1. BUSINESS
Hershey Foods Corporation and its subsidiaries (the "Corporation") are
engaged in the manufacture, distribution and sale of consumer food products. The
Corporation produces and distributes a broad line of chocolate and non-chocolate
confectionery and grocery products.
The Corporation was organized under the laws of the State of Delaware on
October 24, 1927, as a successor to a business founded in 1894 by Milton S.
Hershey.
In January 1999, the Corporation completed the sale of its U.S. pasta
business to New World Pasta, LLC. The transaction included the AMERICAN BEAUTY,
IDEAL BY SAN GIORGIO, LIGHT `N FLUFFY, MRS. WEISS, P&R, RONZONI, SAN GIORGIO and
SKINNER pasta brands along with six manufacturing plants. The Corporation
retained a 6% minority interest in the business.
The Corporation's principal product groups include: chocolate and
non-chocolate confectionery products sold in the form of bar goods, bagged items
and boxed items; and grocery products in the form of baking ingredients,
chocolate drink mixes, peanut butter, dessert toppings and beverages. The
Corporation believes it is a leader in these product groups in North America.
Operating profit margins vary considerably among individual products and brands.
Generally, such margins on chocolate and non-chocolate confectionery products
are greater than those on grocery products.
In North America, the Corporation manufactures chocolate and non-chocolate
confectionery products in a variety of packaged forms and markets them under
more than 50 brands. The different packaged forms include various arrangements
of the same bar products, such as boxes, trays and bags, as well as a variety of
different sizes and weights of the same bar products, such as snack size,
standard, king size, large and giant bars. Among the principal chocolate and
non-chocolate confectionery products in the United States are: HERSHEY'S BITES
candies, HERSHEY'S classic caramels, HERSHEY'S COOKIES 'N' CREME chocolate bars,
HERSHEY'S HUGS chocolates, HERSHEY'S KISSES chocolates, HERSHEY'S KISSES WITH
ALMONDS chocolates, HERSHEY'S milk chocolate bars, HERSHEY'S milk chocolate bars
with almonds, HERSHEY'S MINIATURES chocolate bars, HERSHEY'S NUGGETS chocolates,
AMAZIN' FRUIT gummy bears fruit candy, CARAMELLO candy bars, GOOD & PLENTY
candy, HEATH toffee bar, JOLLY RANCHER candy, KIT KAT wafer bars, LUDEN'S throat
drops, MILK DUDS chocolate covered caramels, MR. GOODBAR milk chocolate bars
with peanuts, NIBS candy, PAYDAY peanut caramel bar, PETER PAUL ALMOND JOY candy
bars, PETER PAUL MOUNDS candy bars, POT OF GOLD boxed chocolates, RAIN-BLO and
SUPER BUBBLE gum, REESE'S NUTRAGEOUS candy bars, REESE'S peanut butter cups,
REESE'S PIECES candies, REESESTICKS wafer bars, ROLO caramels in milk chocolate,
SIXLETS candies, SKOR toffee bars, SYMPHONY milk chocolate bars, SWEET ESCAPES
candy bars, TASTETATIONS candy, TWIZZLERS candy, WHATCHAMACALLIT candy bars,
WHOPPERS malted milk balls, YORK peppermint pattie candy, 5TH AVENUE candy bars
and ZERO candy bars. Principal products in Canada include CHIPITS chocolate
chips, GLOSETTE chocolate-covered raisins, peanuts and almonds, OH HENRY! candy
bars, POT OF GOLD boxed chocolates, REESE PEANUT BUTTER CUPS candy, and
TWIZZLERS candy. The Corporation also manufactures, imports, markets, sells and
distributes chocolate products in Mexico under the HERSHEY'S brand name.
The Corporation manufactures and markets a line of grocery products in the
baking, beverage, peanut butter and toppings categories. Principal products in
the United States include HERSHEY'S, REESE'S and HEATH baking pieces, HERSHEY'S
drink boxes, HERSHEY'S chocolate milk mix, HERSHEY'S cocoa, HERSHEY'S CHOCOLATE
SHOPPE ice cream toppings, HERSHEY'S HOT COCOA COLLECTION hot cocoa mix,
HERSHEY'S syrup and REESE'S peanut butter. HERSHEY'S chocolate milk is produced
and sold under license by certain independent dairies throughout the United
States, using a chocolate milk mix manufactured by the Corporation. Baking and
various other products are produced and sold under the HERSHEY'S and REESE'S
brand names by third parties who have been granted licenses by the Corporation
to use these trademarks.
1
The Corporation's products are sold primarily to grocery wholesalers, chain
grocery stores, candy distributors, mass merchandisers, chain drug stores,
vending companies, wholesale clubs, convenience stores, concessionaires and food
distributors by full-time sales representatives, food brokers and part-time
retail sales merchandisers throughout the United States, Canada and Mexico. The
Corporation believes its products are sold in over 2 million retail outlets in
North America. In 1999, sales to Wal-Mart Stores, Inc. and Subsidiaries amounted
to approximately 15% of the Corporation's total net sales.
In Japan, the Philippines, Korea and China, the Corporation imports and/or
markets selected confectionery and grocery products. The Corporation also
markets chocolate and non-chocolate confectionery products in over 90 countries
worldwide.
The Corporation's marketing strategy is based upon the consistently
superior quality of its products, mass distribution and the best possible
consumer value in terms of price and weight. In addition, the Corporation
devotes considerable resources to the identification, development, testing,
manufacturing and marketing of new products. The Corporation utilizes a variety
of promotional programs for customers and advertising and promotional programs
for consumers. The Corporation employs promotional programs at various times
during the year to stimulate sales of certain products. Chocolate and
non-chocolate confectionery and grocery seasonal and holiday-related sales have
typically been highest during the third and fourth quarters of the year.
The Corporation recognizes that the mass distribution of its consumer food
products is an important element in maintaining sales growth and providing
service to its customers. The Corporation attempts to meet the changing demands
of its customers by planning optimum stock levels and reasonable delivery times
consistent with achievement of efficiencies in distribution. To achieve these
objectives, the Corporation has developed a distribution network from its
manufacturing plants, distribution centers and field warehouses strategically
located throughout the United States, Canada and Mexico. The Corporation uses a
combination of public and contract carriers to deliver its products from the
distribution points to its customers. In conjunction with sales and marketing
efforts, the distribution system has been instrumental in the effective
promotion of new, as well as established, products on both national and regional
scales.
Problems with the start-up of new business systems and processes in the
areas of customer service, warehousing and order fulfillment were encountered
during the Corporation's peak shipping season in the third quarter of 1999.
These problems resulted in lost sales, longer turnaround times, significantly
increased freight and warehousing costs, and higher levels of inventories in
1999. Additionally, as a result of these problems, accounts receivable as of
December 31, 1999, included increased deductions from customer invoices and
higher past due amounts as compared to the prior year. Improvements to the
systems and processes led to a significantly improved order fulfillment process,
with reduced order cycle time and much improved fill rates on orders in the
first quarter of 2000. While customer service has not yet fully returned to
historical levels, the Corporation expects that it will continue to be enhanced
with further improvement of the systems and processes and, as the first phase of
a new 1.2 million square-foot distribution center becomes operational in the
spring of 2000, with full utilization expected during the fall 2000 shipping
season.
From time to time, the Corporation has changed the prices and weights of
its products to accommodate changes in manufacturing costs, the competitive
environment and profit objectives, while at the same time maintaining consumer
value. The last standard candy bar price increase was implemented by the
Corporation in December 1995, resulting in a wholesale price increase of
approximately 11% on its standard and king-size candy bars sold in the United
States.
The most significant raw material used in the production of the
Corporation's chocolate products is cocoa beans. This commodity is imported
principally from West African, South American and Far Eastern equatorial
regions. West Africa accounts for approximately 70% of the world's crop. Cocoa
beans are not uniform, and the various grades and varieties reflect the diverse
agricultural practices and natural conditions found in the many growing areas.
The Corporation buys a mix of cocoa beans to meet its manufacturing
requirements.
The table below sets forth annual average cocoa prices as well as the
highest and lowest monthly averages for each of the calendar years indicated.
The prices are the monthly average of the quotations at noon of the three active
futures trading contracts closest to maturity on the New York Board of Trade.
Because of the Corporation's forward purchasing practices discussed below, and
premium prices paid for certain varieties of cocoa beans, these average futures
contract prices are not necessarily indicative of the Corporation's average cost
of cocoa beans or cocoa products.
2
COCOA FUTURES CONTRACT PRICES
(CENTS PER POUND)
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
Annual Average........ 61.2 62.1 70.0 72.7 48.8
High.................. 64.1 64.4 77.2 78.3 62.7
Low................... 58.3 57.4 59.1 65.5 39.6
Source: International Cocoa Organization Quarterly Bulletin of Cocoa
Statistics
The Federal Agricultural and Improvement Reform Act of 1996, which is a
seven-year farm bill, impacts the prices of sugar, peanuts and milk because it
sets price support levels for these commodities.
The price of sugar, the Corporation's second most important commodity for
its domestic chocolate and confectionery products, is subject to price supports
under the above referenced farm legislation. Due to import quotas and duties
imposed to support the price of sugar established by that legislation, sugar
prices paid by United States users are currently substantially higher than
prices on the world sugar market. The average wholesale list price of refined
sugar, F.O.B. Northeast, has remained relatively stable in a range of $.27
to $.35 per pound for the past ten years.
Peanut prices remained near normal levels throughout 1999, while almond
prices declined to relatively low levels due to a record crop in California.
Milk prices were extremely volatile in 1999; however, strong milk
production resulted in the average milk price dropping to a more normal level
from the historic high prices of 1998.
The Corporation attempts to minimize the effect of price fluctuations
related to the purchase of its major raw materials primarily through the forward
purchasing of such commodities to cover future manufacturing requirements
generally for periods ranging from 3 to 24 months. With regard to cocoa, sugar,
corn sweeteners, natural gas and certain dairy products, price risks are also
managed by entering into futures contracts. At the present time, active futures
contracts are not available for use in pricing the Corporation's other major raw
materials. Futures contracts are used in combination with forward purchasing of
cocoa, sugar, corn sweeteners, natural gas and certain dairy product
requirements principally to take advantage of market fluctuations which provide
more favorable pricing opportunities and to increase diversity or flexibility in
sourcing these raw materials. The Corporation's commodity procurement practices
are intended to reduce the risk of future price increases, but also may
potentially limit the Corporation's ability to benefit from possible price
decreases.
The primary effect on liquidity from using futures contracts is associated
with margin requirements for futures contracts related to cocoa, sugar, corn
sweeteners, natural gas and certain dairy products. Cash outflows and inflows
result from original margins which are "good faith deposits" established by
futures exchanges to ensure that market participants will meet their contractual
financial obligations. Additionally, variation margin payments and receipts are
required when the value of open positions is adjusted to reflect daily price
movements. The magnitude of such cash inflows and outflows is dependent upon
price coverage levels and the volatility of the markets. Historically, cash
flows related to margin requirements have not been material to the Corporation's
total working capital requirements.
The Corporation manages the purchase of forward and futures contracts by
developing and monitoring procurement strategies for each of its major
commodities. These procurement strategies, including the use of futures
contracts to hedge the pricing of cocoa, sugar, corn sweeteners, natural gas and
certain dairy products, are directly linked to the overall planning and
management of the Corporation's business, since the cost of raw materials
accounts for a significant portion of the cost of finished goods. Procurement
strategies with regard to cocoa, sugar and other major raw material requirements
are developed by the analysis of fundamentals, including weather and crop
analysis, and by discussions with market analysts, brokers and dealers.
Procurement strategies are determined, implemented and monitored on a regular
basis by senior management. Procurement activities for all major commodities are
also reported to the Board of Directors on a regular basis.
The Corporation has license agreements with several companies to
manufacture and/or sell products worldwide. Among the more significant are
agreements with affiliated companies of Cadbury Schweppes p.l.c. to manufacture
and/or market and distribute YORK, PETER PAUL ALMOND JOY and PETER PAUL MOUNDS
confectionery products worldwide as well as CADBURY and CARAMELLO confectionery
products in the United States. The Corporation's rights under these agreements
are
3
extendible on a long-term basis at the Corporation's option. The license for
CADBURY and CARAMELLO products is subject to a minimum sales requirement which
the Corporation exceeded in 1999. The Corporation also has an agreement with
Societe des Produits Nestle SA, which licenses the Corporation to manufacture
and distribute KIT KAT and ROLO confectionery products in the United States. The
Corporation's rights under this agreement are extendible on a long-term basis at
the Corporation's option, subject to certain conditions, including minimum unit
volume sales. In 1999, the minimum volume requirements were exceeded. The
Corporation has an agreement with an affiliate of Huhtamaki Oy (Huhtamaki)
pursuant to which it licenses the use of certain trademarks, including GOOD &
PLENTY, HEATH, JOLLY RANCHER, MILK DUDS, PAYDAY and WHOPPERS confectionery
products worldwide. The Corporation's rights under this agreement are extendible
on a long-term basis at the Corporation's option.
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.
The Corporation also assessed year 2000 remediation issues relating to its
major business partners. All of the Corporation's major customers have been
contacted regarding year 2000 issues related to electronic data interchange. The
Corporation also contacted all of its major suppliers of ingredients, packaging,
facilities, logistics and financial services with regard to year 2000 issues. No
significant year 2000 problems have been encountered with the Corporation's
major business partners.
COMPETITION
Many of the Corporation's brands enjoy wide consumer acceptance and are
among the leading brands sold in the marketplace. However, these brands are sold
in highly competitive markets and compete with many other multinational,
national, regional and local firms, some of which have resources in excess of
those available to the Corporation.
TRADEMARKS
The Corporation owns various registered and unregistered trademarks and
service marks, and has rights under licenses to use various trademarks which are
of material importance to the Corporation's business.
BACKLOG OF ORDERS
The Corporation manufactures primarily for stock and fills customer orders
from finished goods inventories. Customer service and order fulfillment problems
associated with the start-up of new business systems and processes were
encountered during the important Back-to-School/Halloween shipping period,
causing distribution difficulties in the form of incomplete and/or delayed
shipments and selective regional/customer out of stock conditions for the
Corporation's products in certain markets. While the backlog of orders was
significant during the third quarter of 1999, such backlog was not material in
respect to total sales as of December 31, 1999.
RESEARCH AND DEVELOPMENT
The Corporation engages in a variety of research activities. These
principally involve development of new products, improvement in the quality of
existing products, improvement and modernization of production processes, and
the development and implementation of new technologies to enhance the quality
and value of both current and proposed product lines.
REGULATION
The Corporation's domestic plants are subject to inspection by the Food and
Drug Administration and various other governmental agencies, and its products
must comply with regulations under the Federal Food, Drug and Cosmetic Act and
with various comparable state statutes regulating the manufacturing and
marketing of food products.
4
ENVIRONMENTAL CONSIDERATIONS
In the past the Corporation has made investments based on compliance with
environmental laws and regulations. Such expenditures have not been material
with respect to the Corporation's capital expenditures, earnings or competitive
position.
EMPLOYEES
As of December 31, 1999, the Corporation had approximately 13,900 full-time
and 1,400 part-time employees, of whom approximately 6,400 were covered by
collective bargaining agreements. In January 1999, a reduction of approximately
900 full-time and 30 part-time employees resulted from the completion of the
sale of the pasta business. The Corporation considers its employee relations to
be good.
FINANCIAL INFORMATION BY GEOGRAPHIC AREA
Information concerning the Corporation's geographic segments is contained
in Footnote 15 of the Corporation's Annual Report to Stockholders included as
Appendix A to the Proxy Statement, which information is incorporated herein by
reference and filed as Exhibit 13 hereto.
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.
ITEM 2. PROPERTIES
The following is a list of the Corporation's principal manufacturing
properties. The Corporation owns each of these properties.
UNITED STATES
Hershey, Pennsylvania - confectionery and grocery products (3
principal plants)
Lancaster, Pennsylvania - confectionery products
Oakdale, California - confectionery and grocery products
Robinson, Illinois - confectionery and grocery products
Stuarts Draft, Virginia - confectionery and grocery products
CANADA
Smiths Falls, Ontario - confectionery and grocery products
In addition to the locations indicated above, the Corporation owns or
leases several other properties used for manufacturing chocolate and
non-chocolate confectionery and grocery products and for sales, distribution and
administrative functions.
The Corporation's plants are efficient and well maintained. These plants
generally have adequate capacity and can accommodate seasonal demands, changing
product mixes and certain additional growth. The largest plants are located in
Hershey, Pennsylvania. Many additions and improvements have been made to these
facilities over the years and the plants' manufacturing equipment includes
equipment of the latest type and technology.
5
ITEM 3. LEGAL PROCEEDINGS
In January 1999, the Corporation received a Notice of Proposed Deficiency
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 $60.4 million, including interest as of December 31, 1999. The
Corporation may be subject to additional assessments for federal and state tax
and interest payments for years subsequent to 1996. 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
Not applicable.
6
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Information concerning the principal United States trading market for,
market prices of and dividends on the Corporation's Common Stock and Class B
Common Stock, and the approximate number of stockholders, may be found in the
section "Market Prices and Dividends" on page A-9 of the Corporation's Annual
Report to Stockholders included as Appendix A to the Proxy Statement,
incorporated herein by reference and filed as Exhibit 13 hereto.
ITEM 6. SELECTED FINANCIAL DATA
The following information, for the five years ended December 31, 1999,
found in the section "Eleven-Year Consolidated Financial Summary" on pages A-33
through A-35 of the Corporation's Annual Report to Stockholders included as
Appendix A to the Proxy Statement, is incorporated herein by reference and filed
as Exhibit 13 hereto: Net Sales; Income from Continuing Operations Before
Accounting Changes; Income Per Share from Continuing Operations Before
Accounting Changes - Basic (excluding Notes i, j and k); Dividends Paid on
Common Stock (and related Per Share amounts); Dividends Paid on Class B Common
Stock (and related Per Share amounts); Long-term Portion of Debt; and Total
Assets.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The section "Management's Discussion and Analysis," found on pages A-1
through A-10 of the Corporation's Annual Report to Stockholders included as
Appendix A to the Proxy Statement, is incorporated herein by reference and filed
as Exhibit 13 hereto.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following audited consolidated financial statements of the Corporation
and its subsidiaries are found at the indicated pages in the Corporation's
Annual Report to Stockholders included as Appendix A to the Proxy Statement, and
such financial statements, along with the Report of the Independent Public
Accountants thereon, are incorporated herein by reference and filed as Exhibit
13 hereto.
1. Consolidated Statements of Income for the years ended December 31,
1999, 1998 and 1997. (Page A-11)
2. Consolidated Balance Sheets as of December 31, 1999 and 1998.
(Page A-12)
3. Consolidated Statements of Cash Flows for the years ended December 31,
1999, 1998 and 1997. (Page A-13)
4. Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1999, 1998 and 1997. (Page A-14)
5. Notes to Consolidated Financial Statements (Pages A-15 through
A-30), including "Quarterly Data (Unaudited)." (Page A-30)
6. Report of Independent Public Accountants. (Page A-32)
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The names, ages, positions held with the Corporation, periods of service as
a director, principal occupations, business experience and other directorships
of nominees for director of the Corporation are set forth in the section
"Election of Directors" in the Proxy Statement. This information is incorporated
herein by reference.
EXECUTIVE OFFICERS OF THE CORPORATION AS OF FEBRUARY 28, 2000
NAME AGE POSITIONS HELD DURING THE LAST FIVE YEARS
---- --- -----------------------------------------
K. L. Wolfe..................... 61 Chairman of the Board and Chief Executive Officer (1993)
J. P. Viviano (1)............... 61 Vice Chairman of the Board (1999); President and Chief Operating Officer (1993)
M. F. Pasquale.................. 52 Executive Vice President and Chief Operating Officer (2000); Senior Vice
President, Confectionery and Grocery (1999); President, Hershey Chocolate
North America (1995)
W. F. Christ ................... 59 Senior Vice President, Chief Financial Officer and Treasurer (1997); Senior
Vice President and Chief Financial Officer (1994)
R. Brace ...................... 56 Senior Vice President, Operations (1999); Vice President, Operations (1997);
Vice President, Manufacturing, Hershey Chocolate North America (1995)
R. M. Reese .................... 50 Senior Vice President - Public Affairs, General Counsel and Secretary (1999);
Vice President, General Counsel and Secretary (1995)
J. R. Canavan (2)............... 52 Vice President, Human Resources (1999)
D. W. Tacka..................... 46 Corporate Controller and Chief Accounting Officer (1995); Vice President,
Finance and Administration, Hershey Pasta Group, part of the former Hershey
Pasta and Grocery Group of which a 94% majority interest was sold in 1999
(1989)
________________________
There are no family relationships among any of the above-named officers of
the Corporation.
(1) Mr. Viviano retired as Vice Chairman of the Board on March 1, 2000.
(2) Mr. Canavan was elected Vice President, Human Resources effective
January 1, 1999. Prior to joining the Corporation he was Vice President,
Staffing, IBM United States Corporation in New York (1998) and Vice President,
Human Resources, IBM North America (1993).
Corporate Officers and Division Presidents are generally elected each year
at the organization meeting of the Board of Directors in April.
Reporting of any inadvertent late filings of a Securities and Exchange
Commission Form 4 under Section 16 of the Securities Exchange Act of 1934, as
amended, is set forth in the section of the Proxy Statement "Section 16(a)
Beneficial Ownership Reporting Compliance."
8
ITEM 11. EXECUTIVE COMPENSATION
Information concerning compensation of the five most highly-compensated
executive officers, including the Chairman of the Board and Chief Executive
Officer, of the Corporation individually, and compensation of directors, is set
forth in the sections "1999 Executive Compensation" and "Directors'
Compensation" in the Proxy Statement. This information is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information concerning ownership of the Corporation's voting securities by
certain beneficial owners, individual nominees for director and by management,
including the five most highly-compensated executive officers, is set forth in
the section "Voting Securities" in the Proxy Statement. This information is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information concerning "Certain Relationships and Related Transactions" is
set forth in the section "Certain Transactions and Relationships" in the Proxy
Statement. This information is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
ITEM 14(A)(1): FINANCIAL STATEMENTS
The audited consolidated financial statements of the Corporation and its
subsidiaries and the Report of Independent Public Accountants thereon, as
required to be filed with this report, are set forth in Item 8 of this report
and are incorporated therein by reference to specific pages of the Corporation's
Annual Report to Stockholders included as Appendix A to the Proxy Statement and
filed as Exhibit 13 hereto.
ITEM 14(A)(2): FINANCIAL STATEMENT SCHEDULE
The following consolidated financial statement schedule of the Corporation
and its subsidiaries for the years ended December 31, 1999, 1998 and 1997 is
filed herewith on the indicated page in response to Item 14(d):
Schedule II -- Valuation and Qualifying Accounts (Page 15)
Other schedules have been omitted as not applicable or required, or because
information required is shown in the consolidated financial statements or notes
thereto.
Financial statements of the parent corporation only are omitted because the
Corporation is primarily an operating corporation and there are no significant
restricted net assets of consolidated and unconsolidated subsidiaries.
ITEM 14(A)(3): EXHIBITS
The following items are attached or incorporated by reference in response
to Item 14(c):
(3) Articles of Incorporation and By-laws
The Corporation's Restated Certificate of Incorporation, as amended,
is incorporated by reference from Exhibit 3 to the Corporation's
Quarterly Report on Form 10-Q for the quarter ended April 3, 1988.
The By-laws, as amended and restated as of December 1, 1998, are
incorporated by reference from Exhibit 3 to the Corporation's Annual
Report on Form 10-K for the fiscal year ended December 31, 1998.
9
(4) Instruments defining the rights of security holders, including
indentures
The Corporation has issued certain long-term debt instruments, no one
class of which creates indebtedness exceeding 10% of the total assets
of the Corporation and its subsidiaries on a consolidated basis.
These classes consist of the following:
a. 6.7% Notes due 2005
b. 6.95% Notes due 2007
c. 6.95% Notes due 2012
d. 8.8% Debentures due 2021
e. 7.2% Debentures due 2027
f. Other Obligations
The Corporation will furnish copies of the above debt instruments to
the Commission upon request.
(10) Material contracts
a. Kit Kat and Rolo License Agreement (the "License Agreement")
between Hershey Foods Corporation and Rowntree Mackintosh
Confectionery Limited is incorporated by reference from
Exhibit 10(a) to the Corporation's Annual Report on Form
10-K for the fiscal year ended December 31, 1980. The
License Agreement was amended in 1988 and the Amendment
Agreement is incorporated by reference from Exhibit 19
to the Corporation's Quarterly Report on Form 10-Q for the
quarter ended July 3, 1988. The License Agreement was
assigned by Rowntree Mackintosh Confectionery Limited to
Societe des Produits Nestle SA as of January 1, 1990. The
Assignment Agreement is incorporated by reference from
Exhibit 19 to the Corporation's Annual Report on Form 10-K
for the fiscal year ended December 31, 1990.
b. Peter Paul/York Domestic Trademark & Technology License
Agreement between Hershey Foods Corporation and
Cadbury Schweppes Inc. (now CBI Holdings, Inc.) dated August
25, 1988, is incorporated by reference from Exhibit 2(a) to
the Corporation's Current Report on Form 8-K dated
September 8, 1988. This agreement was assigned by the
Corporation to its wholly owned subsidiary, Hershey
Chocolate and Confectionery Corporation.
c. Cadbury Trademark & Technology License Agreement among
Hershey Foods Corporation and Cadbury Schweppes Inc. (now
CBI Holdings, Inc.) and Cadbury Limited dated August 25,
1988, is incorporated by reference from Exhibit 2(a) to the
Corporation's Current Report on Form 8-K dated September 8,
1988.
d. The Amended and Restated 364-Day Credit Agreement among
Hershey Foods Corporation, the banks, financial institutions
and other institutional lenders listed on the signature pages
thereof, and Citibank, N.A. as administrative agent, Banc
America Securities LLC as co-syndication agent, and Salomon
Smith Barney Inc, as co-syndication agent and arranger is
attached hereto and filed as Exhibit 10.1.
e. Five-Year Credit Agreement among Hershey Foods Corporation,
the banks, financial institutions and other institutional
lenders listed on the signature pages thereof, and Citibank,
N.A. as administrative agent and Citicorp Securities, Inc.
(now Salomon Smith Barney Inc.) and BA Securities, Inc. (now
Banc America Securities LLC) as co-syndication agents, is
incorporated by reference from Exhibit 10.2 to the
Corporation's Current Report on Form 8-K dated January 29,
1996. The Five-Year Credit Agreement was renewed in late
1997.
f. Trademark and Technology License Agreement between Huhtamaki
and Hershey Foods Corporation dated December 30, 1996, is
incorporated by reference from Exhibit 10 to the Corporation's
Current Report on Form 8-K dated February 26, 1997. This
agreement was assigned by the Corporation to its wholly owned
subsidiary, Hershey Chocolate and Confectionery Corporation.
The agreement was amended and restated in
10
1999 and the Amended and Restated Trademark and Technology
License Agreement is attached hereto and filed as
Exhibit 10.2.
Executive Compensation Plans
g. The restated Key Employee Incentive Plan, incorporated by
reference from the Corporation's Proxy Statement dated March
17, 1997 and filed in connection with the April 29, 1997
Annual Meeting of Stockholders, was amended in 1999, and a
copy of the plan, as amended and restated, is attached hereto
and filed as Exhibit 10.3.
h. Hershey Foods Corporation's Restated Supplemental Executive
Retirement Plan, incorporated by reference from Exhibit 19(ii)
to the Corporation's Annual Report on Form 10-K for the fiscal
year ended December 31, 1994, was amended in 1999, and a copy
of the plan, as amended and restated, is attached hereto
and filed as Exhibit 10.4.
i. Hershey Foods Corporation's Deferred Compensation Plan is
incorporated by reference from Exhibit 10.3 to the
Corporation's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996.
j. Hershey Foods Corporation's Directors' Compensation Plan is
incorporated by reference from Exhibit 10 to the Corporation's
Quarterly Report on Form 10-Q for the quarter ended September
28, 1997.
k. Hershey Foods Corporation's Executive Benefits Protection
Plan (Group 3A), covering certain of its executive officers,
is attached hereto and filed as Exhibit 10.5.
(12) Computation of ratio of earnings to fixed charges statement
A computation of ratio of earnings to fixed charges for the years
ended December 31, 1999, 1998, 1997, 1996 and 1995 is filed as
Exhibit 12 hereto.
(13) Annual report to security holders
The Corporation's Annual Report to Stockholders is included as
Appendix A to the Proxy Statement and is filed as Exhibit 13 hereto.
(14b) A Current Report on Form 8-K was filed on January 4, 2000 announcing
that the Corporation's sales in December 1999 will be lower than
expected, and that its earnings per share for the fiscal year ending
December 31, 1999, might be below market expectations.
(21) Subsidiaries of the Registrant
A list setting forth subsidiaries of the Corporation is filed as
Exhibit 21 hereto.
(23) Consent of Independent Public Accountants
The consent to the incorporation of reports of the Corporation's
Independent Public Accountants dated January 28, 2000, is filed as
Exhibit 23 hereto.
(27) Financial Data Schedule for the period ended December 31, 1999
(required for electronic filing only).
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SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE CORPORATION HAS DULY CAUSED THIS REPORT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
HERSHEY FOODS CORPORATION
(Registrant)
Date: March 13, 2000 By /s/ W. F. CHRIST
- -------------------- ---------------------
(W. F. Christ, Senior Vice President,
Chief Financial Officer and Treasurer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Corporation and in the capacities and on the date indicated.
SIGNATURE TITLE DATE
--------- ----- ----
K. L. WOLFE Chief Executive Officer and Director March 13, 2000
--------------------
(K. L. Wolfe )
W. F. CHRIST Chief Financial Officer and Treasurer March 13, 2000
--------------------
(W. F. Christ)
D. W. TACKA Chief Accounting Officer March 13, 2000
--------------------
(D. W. Tacka)
M. F. PASQUALE Director March 13, 2000
--------------------
(M. F. Pasquale)
W. H. ALEXANDER Director March 13, 2000
--------------------
(W. H. Alexander)
R. H. CAMPBELL Director March 13, 2000
--------------------
(R. H. Campbell)
C. M. EVARTS, M.D. Director March 13, 2000
--------------------
(C. M. Evarts, M.D.)
B. GUITON HILL Director March 13, 2000
--------------------
(B. Guiton Hill)
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SIGNATURE TITLE DATE
--------- ----- ----
J. C. JAMISON Director March 13, 2000
--------------------
(J. C. Jamison)
A. Z. LOREN Director March 13, 2000
--------------------
(A. Z. Loren)
M. J. MCDONALD Director March 13, 2000
--------------------
(M. J. McDonald)
J. M. PIETRUSKI Director March 13, 2000
--------------------
(J. M. Pietruski)
13
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Hershey Foods Corporation:
We have audited, in accordance with generally accepted auditing standards, the
consolidated financial statements included in Hershey Foods Corporation's Proxy
Statement for its 2000 Annual Meeting of Stockholders incorporated by reference
in this Form 10-K, and have issued our report thereon dated January 28, 2000.
Our audit was made for the purpose of forming an opinion on those financial
statements taken as a whole. The schedule listed on page 9 in Item 14(a)(2) is
the responsibility of the Corporation's management and is presented for purposes
of complying with the Securities and Exchange Commission's rules and is not part
of the basic financial statements. This schedule has been subjected to the
auditing procedures applied in the audit of the basic financial statements and,
in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
ARTHUR ANDERSEN LLP
New York, New York
January 28, 2000
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Schedule II
HERSHEY FOODS CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(in thousands of dollars)
ADDITIONS
------------------------------
Balance at Charged to Charged Deductions Balance
Beginning Costs and to Other from at End
Description of Period Expenses Accounts (a) Reserves of Period
- ------------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1999:
Reserves deducted in the
balance sheet from the
assets to which they apply:
Accounts Receivable -Trade ........... $ 19,941 $ 2,629 $ 597 $(6,226) (b) $ 16,941
=========== ======== ========== ======== =========
Year Ended December 31, 1998:
Reserves deducted in the
balance sheet from the
assets to which they apply:
Accounts Receivable -Trade............ $ 15,843 $ 5,540 $ (210) $ (1,232) $ 19,941
=========== ======== ========= ========= =========
Year Ended December 31, 1997:
Reserves deducted in the
balance sheet from the
assets to which they apply:
Accounts Receivable -Trade............ $ 14,059 $ 2,623 $ 522 $ (1,361) $ 15,843
=========== ======== ========== ========= =========
- --------------------------------------------------------------------------------
(a) Includes recoveries of amounts previously written off.
(b) Includes reserves related to the Corporation's pasta business which was sold
in January 1999.
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