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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 3, 1994
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 - 71,997,618 shares, as of May 2, 1994.
Class B Common Stock, $1 par value - 15,242,979 shares, as of
May 2, 1994.
Exhibit Index - Page 11
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HERSHEY FOODS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(in thousands of dollars except per share amounts)
For the Three Months Ended
April 3, April 4,
1994 1993
Net Sales $883,890 $ 897,788
Costs and Expenses:
Cost of sales 526,728 510,769
Selling, marketing and administrative 261,569 273,245
Total costs and expenses 788,297 784,014
Gain on Sale of Investment Interest - 80,642
Income before Interest, Income Taxes
and Accounting Changes 95,593 194,416
Interest expense, net 7,526 7,561
Income before Income Taxes
and Accounting Changes 88,067 186,855
Provision for income taxes 35,051 81,800
Income Before Cumulative Effect
of Accounting Changes 53,016 105,055
Net cumulative effect of
accounting changes - (103,908)
Net Income $ 53,016 $ 1,147
Income per Share:
Before accounting changes $ .61 $ 1.16
Net cumulative effect of
accounting changes - (1.15)
Net income $ .61 $ .01
Cash Dividends Paid per Share
of Common Stock $ .3000 $ .2700
Cash Dividends Paid per Share of Class B
Common Stock $ .2725 $ .2450
The accompanying notes are an integral part of these statements.
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HERSHEY FOODS CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
APRIL 3, 1994 AND DECEMBER 31, 1993
(in thousands of dollars)
ASSETS 1994 1993
Current Assets:
Cash and cash equivalents $ 31,015 $ 15,959
Accounts receivable - trade 252,751 294,974
Inventories 521,146 453,442
Deferred income taxes 83,712 85,548
Prepaid expenses and other 43,722 39,073
Total current assets 932,346 888,996
Property, Plant and Equipment, at cost 2,074,896 2,041,764
Less - accumulated depreciation and
amortization 603,010 580,860
Net property, plant and equipment 1,471,886 1,460,904
Intangibles Resulting from Business
Acquisitions 467,010 473,408
Other Assets 32,748 31,783
Total assets $2,903,990 $2,855,091
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 106,371 $ 125,658
Accrued liabilities 273,524 301,989
Accrued income taxes 33,309 35,603
Short-term debt 425,381 337,286
Current portion of long-term debt 18,020 13,309
Total current liabilities 856,605 813,845
Long-term Debt 159,123 165,757
Other Long-term Liabilities 290,870 290,401
Deferred Income Taxes 177,097 172,744
Total liabilities 1,483,695 1,442,747
Stockholders' Equity:
Preferred Stock, shares issued:
none in 1994 and 1993 - -
Common Stock, shares issued:
74,679,357 in 1994
and 74,669,057 in 1993 74,679 74,669
Class B Common Stock, shares issued:
15,242,979 in 1994
and 15,253,279 in 1993 15,243 15,253
Additional paid-in capital 50,034 51,196
Cumulative foreign currency translation
adjustments (21,164) (13,905)
Unearned ESOP compensation (39,918) (41,515)
Retained earnings 1,472,837 1,445,609
Treasury-Common Stock shares at cost:
2,565,739 in 1994 and 2,309,100 in 1993 (131,416) (118,963)
Total stockholders' equity 1,420,295 1,412,344
Total liabilities and stockholders'
equity $2,903,990 $2,855,091
The accompanying notes are an integral part of these balance sheets.
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HERSHEY FOODS CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(in thousands of dollars)
For the Three Months Ended
April 3, April 4,
1994 1993
Cash Flows Provided from Operating Activities $ 9,607 $ 81,826
Cash Flows Provided from (Used by)
Investing Activities
Capital additions (43,023) (51,061)
Business acquisitions - (14,600)
Other, net 713 (294)
Net Cash Flows (Used by) Investing Activities (42,310) (65,955)
Cash Flows Provided from (Used by)
Financing Activities
Net increase in short-term debt 88,095 73,663
Long-term borrowings - 669
Repayment of long-term debt (2,095) (45,614)
Cash dividends paid (25,788) (23,969)
Repurchase of Common Stock (12,453) -
Net Cash Flows Provided from
Financing Activities 47,759 4,749
Increase in Cash and Cash Equivalents 15,056 20,620
Cash and Cash Equivalents, beginning of period 15,959 24,114
Cash and Cash Equivalents, end of period $ 31,015 $ 44,734
Interest Paid $ 6,713 $ 8,149
Income Taxes Paid $ 29,838 $ 15,073
The accompanying notes are an integral part of these statements.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The accompanying unaudited consolidated condensed financial
statements include the accounts of the Corporation and its
subsidiaries after elimination of intercompany accounts and
transactions. These statements reflect all adjustments which
are, in the opinion of management, necessary for a fair
presentation of the information contained herein. All such
adjustments were of a normal and recurring nature.
2. Interest expense, net consisted of the following:
For the Three Months Ended
April 3, 1994 April 4, 1993
(in thousands of dollars)
Interest expense $ 9,253 $ 10,019
Interest income (371) (719)
Capitalized interest (1,356) (1,739)
Interest expense, net $ 7,526 $ 7,561
3. Income per share has been computed based on the weighted
average number of shares of the Common Stock and the Class B
Common Stock outstanding during the period. Average shares
outstanding during the first quarter were 87,413,699 in 1994
and 90,186,336 in 1993. There were no shares of Preferred
Stock outstanding during the periods presented.
During the second quarter of 1993, the Corporation's Board of
Directors approved a share repurchase program to acquire from
time to time through open market or privately negotiated
transactions up to $200 million of Common Stock. A total of
2,829,739 shares have been repurchased under the program of
which 2,565,739 shares were held as Treasury Stock as of
April 3, 1994.
4. 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:
April 3, 1994 December 31, 1993
(in thousands of dollars)
Raw materials $326,780 $209,570
Goods in process 30,896 37,261
Finished goods 230,868 265,616
Inventories at FIFO 588,544 512,447
Adjustment to LIFO (67,398) (59,005)
Total inventories $521,146 $453,442
5. In March 1993, the Corporation recorded a pre-tax gain of
$80.6 million on the sale of its 18.6% interest in Freia
Marabou a.s. This gain had the effect of increasing net
income in the first quarter of 1993 by $40.6 million. Gross
proceeds from the sale in the amount of $259.7 million were
received in April 1993.
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6. In March 1993, the Corporation purchased certain assets of the
Cleveland area Ideal Macaroni and Mrs. Weiss Noodle companies
for approximately $14.6 million.
In September 1993, the Corporation completed the acquisition
of the Italian confectionery business of Heinz Italia S.p.A.
for approximately $130.0 million. The business is the leader
in the Italian non-chocolate confectionery market and
manufactures and distributes a wide range of confectionery
products, including sugar candies and traditional products for
special occasions such as nougat and gift boxes.
In October 1993, the Corporation completed the purchase of the
outstanding shares of Overspecht B.V. (OZF Jamin) for
approximately $20.2 million plus the assumption of
approximately $13.4 million in debt. OZF Jamin manufactures
chocolate and non-chocolate confectionery products, cookies,
biscuits and ice cream for distribution primarily to customers
in the Netherlands and Belgium.
In accordance with the purchase method of accounting, the
purchase prices for the above acquisitions have been allocated
to the underlying assets and liabilities at the date of
acquisition based on their estimated respective fair values.
These allocations and estimated fair values may be revised at
a later date. Results subsequent to the dates of acquisition
are included in the consolidated financial statements. Had
the results of the acquisitions been included in consolidated
financial results for each period presented, the effect would
not have been material.
7. During the first quarter of 1993, the Corporation completed
the early repayment of $42.1 million of long-term debt.
8. Effective January 1, 1993, the Corporation adopted Statements
of Financial Accounting Standards No. 106 "Employers'
Accounting for Post-retirement Benefits Other Than Pensions"
and No. 109 "Accounting for Income Taxes" by means of catch-up
adjustments. The net charge associated with these changes in
accounting had the effect of decreasing net income by
approximately $103.9 million, or $1.15 per share.
9. Reference is made to the Registrant's 1993 Annual Report on
Form 10-K for more detailed financial statements and
footnotes.
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Management's Discussion and Analysis
Results of Operations - First Quarter 1994 vs. First Quarter 1993
Consolidated net sales for the first quarter fell from $897.8
million in 1993 to $883.9 million in 1994, a decrease of 2% from
the prior year. The lower sales reflected continuing sluggish demand for
existing confectionery and grocery brands caused by weak market
conditions which began late in the first quarter of 1993 and have continued
into the first half of 1994, adverse weather and an earlier Easter
in 1994, and the timing of certain year-end promotions which shifted some
domestic confectionery sales into the fourth quarter of 1993. These sales
decreases were substantially offset by sales increases attributable
to new confectionery products and international businesses acquired
in the second half of 1993.
The consolidated gross margin decreased from 43.1% in 1993 to 40.4%
in 1994. The decrease was primarily the result of higher costs for
certain major raw materials, including flour, higher unit manufacturing
costs associated with lower sales volumes, and increased expenses for
shipping and depreciation, partially offset by pasta selling price
increases. Selling, marketing and administrative expenses
decreased by 4%, primarily due to lower levels of promotion and
advertising expenses related to the sales volume decline, partially
offset by higher selling expenses associated with the 1993 business
acquisitions.
In March 1993, the Corporation recorded a pre-tax gain of $80.6
million on the sale of its 18.6% investment interest in Freia
Marabou a.s (Freia) which increased net income by $40.6 million.
Net interest expense in the first quarter of 1994 was in line with
the comparable period of 1993 as higher short-term interest expense
and decreased capitalized interest were offset by lower fixed
interest expense resulting from the 1993 early repayment of long-
term debt. The 1994 increase in short-term interest reflected
higher average short-term borrowing levels to finance acquisitions
and a share repurchase program. A cumulative decrease in
expenditures qualifying for interest capitalization resulted in
lower capitalized interest in 1994.
The first quarter effective income tax rate decreased from 43.8% in
1993 to 39.8% in 1994. The higher rate in 1993 was due primarily
to the relatively high income taxes associated with the gain on the
sale of the Freia investment. The 1994 effective income tax rate
reflected the increase in the Federal statutory income tax rate as
provided for in the Revenue Reconciliation Act of 1993.
Effective January 1, 1993, the Corporation adopted Statements of
Financial Accounting Standards No. 106 "Employers' Accounting for
Post-retirement Benefits Other Than Pensions" and No. 109
"Accounting for Income Taxes" by means of catch-up adjustments.
The net charge associated with these changes in accounting had the
effect of decreasing 1993 first quarter net income by approximately
$103.9 million, or $1.15 per share.
Financial Condition
Historically, the Corporation's major source of financing has been
cash generated from operations. Domestic seasonal working capital
needs, which typically peak during the summer, generally have been
met by issuing commercial paper. During the first three months of
1994, the Corporation's cash and cash equivalents increased by
$15.1 million. Cash provided from operations and short-term
borrowings were sufficient to finance capital additions of $43.0
million, pay cash dividends of $25.8 million and fund share
repurchases of $12.5 million.
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The ratio of current assets to current liabilities was 1.1:1 as of
April 3, 1994 and December 31, 1993. The Corporation's
capitalization ratio (total short-term and long-term debt as a
percent of stockholders' equity, short-term and long-term debt) was
30% as of April 3, 1994, and 27% as of December 31, 1993. As of
April 3, 1994, the Corporation had $31.0 million of cash and cash
equivalents, $18.0 million of current portion of long-term debt and
$425.4 million of short-term debt. As of April 3, 1994 the
Corporation had lines of credit with domestic and international
commercial banks in the amount of approximately $575 million which
could be borrowed directly or used to support the issuance of
commercial paper.
As of April 3, 1994, $100 million of debt securities remained
available for issuance under a Form S-3 Registration Statement
which was declared effective in June 1990 and an additional $400
million of debt securities under a Form S-3 Registration Statement
declared effective in November 1993. Proceeds from any offering of
the $500 million of debt securities available under these shelf
registrations may be used to reduce existing commercial paper
borrowings, finance capital additions, and fund a share repurchase
program and future business acquisitions.
As of April 3, 1994, the Corporation's principal capital
commitments included manufacturing capacity expansion and
modernization. The Corporation anticipates that capital
expenditures will be in the range of $200 million per annum during
the next several years as a result of the expansion of facilities
to support new products and continued modernization of existing
facilities.
During the second quarter of 1993, the Corporation's Board of
Directors approved a share repurchase program to acquire from time
to time through open market or privately negotiated transactions up
to $200 million of Common Stock. A total of 2,829,739 shares have
been repurchased under the program of which 2,565,739 shares were
held as Treasury Stock as of April 3, 1994.
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Part II
Items 1 through 3 and 5 have been omitted as not applicable.
Item 4 - Submission of Matters to a Vote of Security Holders
Hershey Foods Corporation's Annual Meeting of Stockholders was held on
April 25, 1994. 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
Thomas C. Graham 213,777,046 190,082
Bonnie Guiton Hill 213,712,153 254,975
John C. Jamison 213,805,573 161,555
Sybil C. Mobley 213,725,207 241,921
Francine I. Neff 213,701,492 265,636
Rod J. Pera 213,667,171 299,957
John M. Pietruski 213,803,231 163,897
H. Robert Sharbaugh 213,803,145 163,983
Joseph P. Viviano 213,792,014 175,114
Kenneth L. Wolfe 213,805,077 162,051
The following directors were elected by the holders of the Common Stock
voting as a class:
Name Votes For Votes Withheld
Howard O. Beaver 61,854,088 181,460
Vincent A. Sarni 61,866,041 169,507
Holders of the Common Stock and the Class B Common Stock voting together
approved the appointment of Arthur Andersen & Co. as the independent public
accountants for 1994. Stockholders cast 213,659,668 votes FOR the
appointment, 124,984 votes AGAINST the appointment and ABSTAINED from casting
182,476 votes on the appointment of accountants.
No other matters were submitted for stockholder action.
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 3, 1994 and April 4, 1993.
Exhibit 99 - Press release dated March 25, 1994 announcing expected
earnings comparison with the prior year.
b) Reports on Form 8-K
No reports on Form 8-K were filed during the three-month period ended
April 3, 1994.
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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 11, 1994 /s/ William F. Christ
William F. Christ
Senior Vice President and
Chief Financial Officer
Date May 11, 1994 /s/ John B. Stiles
John B. Stiles
Vice President and
Corporate Controller
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EXHIBIT INDEX
Exhibit 12 - Computation of Ratio of Earnings to Fixed Charges
Exhibit 99 - Press release dated March 25, 1994 announcing expected
earnings comparison with the prior year