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, 1997
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.
-------- ------------------
1-183 100 CRYSTAL A DRIVE 23-0691590
HERSHEY, PENNSYLVANIA 17033
(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 -- $6,450,447,595 as of March 2, 1998.
Class B Common Stock, one dollar par value -- $9,780,020 as of March 2,
1998. 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 March 2, 1998.
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 -- 112,637,318 shares, as of
March 2, 1998.
Class B Common Stock, one dollar par value -- 30,453,908 shares, as of
March 2, 1998.
DOCUMENTS INCORPORATED BY REFERENCE
The Corporation's Consolidated Financial Statements and Management's
Discussion and Analysis for the year ended December 31, 1997 are included in
Appendix A to the Corporation's Proxy Statement for the Corporation's 1998
Annual Meeting of Stockholders and are incorporated by reference into Part II
and are 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, primarily through its Hershey Chocolate North America, Hershey
International and Hershey Pasta and Grocery Group divisions, produces and
distributes a broad line of chocolate and non-chocolate confectionery, pasta 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.
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; grocery products in the form of baking ingredients, chocolate
drink mixes, peanut butter, dessert toppings and beverages; and pasta products
sold in a variety of shapes, sizes, flavors and packages. The Corporation
believes it is a major factor 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 pasta and other food 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 product, 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 classic
caramels, HERSHEY'S COOKIES 'N' CREME chocolate bars, HERSHEY'S COOKIES 'N' MINT
chocolate bars, HERSHEY'S HUGS chocolates, HERSHEY'S HUGS WITH ALMONDS
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, CADBURY'S CREME EGGS 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, PAYDAY peanut caramel bar, PETER PAUL
ALMOND JOY candy bars, PETER PAUL MOUNDS candy bars, RAIN-BLO and SUPER BUBBLE
gum, REESE'S NUTRAGEOUS candy bars, REESE'S peanut butter cups, REESE'S PIECES
candies, 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. Ice cream,
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.
The Corporation manufactures and sells quality pasta products throughout the
United States. The Corporation markets its products on a regional basis under
several brand names, including AMERICAN BEAUTY, IDEAL BY SAN GIORGIO, LIGHT 'N
FLUFFY, MRS. WEISS', P&R, RONZONI, SAN GIORGIO and SKINNER, as well as certain
private labels.
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 1997, sales to Wal-Mart Stores, Inc. and Subsidiaries amounted
to approximately 12% of total net sales.
In Japan, China and Russia/CIS, 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.
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 60% 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 Coffee, Sugar and
Cocoa Exchange. 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.
COCOA FUTURES CONTRACT PRICES
(CENTS PER POUND)
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
Annual Average.... 47.3 59.1 61.2 62.1 70.0
High.............. 56.7 66.1 64.1 64.4 77.2
Low............... 41.8 51.3 58.3 57.4 59.1
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 $.28
to $.35 per pound for the past ten years.
Peanut prices remained near normal levels for the first three quarters of
1997 but increased slightly during the fourth quarter due to a late season
drought in the southeastern U.S.
Dairy prices returned to more normal levels in 1997 after reaching
historically high levels in 1996.
Almond prices were at historically high levels for the first three quarters
of the year. During the fourth quarter, prices declined 30-40% as the much
larger new crop was harvested.
Pasta is made from semolina milled from durum wheat, a class of hard wheat
grown in the United States and Canada. The Corporation purchases semolina from
commercial mills and is also engaged in custom milling agreements to obtain
sufficient quantities of semolina. Durum wheat production during 1997 decreased
in almost every area of the world, resulting in historically high price levels.
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 and natural gas, price risks are also managed by entering into
futures and options contracts. At the present time, active futures and options
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 sweetener and natural gas 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 related to cocoa and sugar futures. 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 market.
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 and natural gas
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
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 1997. 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 1997, 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 the GOOD & PLENTY, HEATH, JOLLY RANCHER, MILK DUDS, PAYDAY and
WHOPPERS confectionery products in the North, Central and South American
regions. The Corporation's rights under this agreement are extendible on a
long-term basis at the Corporation's option.
In late 1996, the Corporation approved a project to implement an
enterprise-wide integrated information system to replace most of the transaction
systems and applications currently supporting operations of the Corporation.
Total commitments for this system are expected to be in the range of $75 million
to $85 million. This system is Year 2000 compliant and will replace a large
portion of the Corporation's legacy information systems. Legacy systems not
being replaced by the new integrated information system are being upgraded to be
Year 2000 compliant and the costs are not expected to be material to the
Corporation's business, operations, or financial condition. Progress toward
compliance with Year 2000 issues by the Corporation's major business partners
and suppliers is being reviewed for the most significant operations and business
activities. The extent of Year 2000 compliance efforts by major partners and
suppliers and the possible effect on the Corporation's business of their failure
to comply cannot be reliably determined and estimated at this time. The
remediation of Year 2000 issues involving the Corporation's information systems
is expected to be completed in time to prevent any material adverse consequences
to the Corporation's business, operations or financial condition.
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. While at any given time there may be some
backlog of orders, such backlog is not material in respect to total sales, nor
are the changes from time to time significant.
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.
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, 1997, the Corporation had approximately 14,900 full-
time and 1,300 part-time employees, of whom approximately 6,800 were
covered by collective bargaining agreements. 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 16 of the Corporation's Consolidated Financial Statements and
Management's Discussion and Analysis included in Appendix A to the Proxy
Statement for its 1998 Annual Meeting of Stockholders (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. Forward looking statements
contained in this document include, but are not limited to Year 2000 issues
(particularly with regard to the Corporation's business partners and suppliers),
the impact of the use of derivative instruments, the amount of future capital
expenditures and the possible uses of proceeds from any future borrowings under
the Corporation's currently effective credit facility or 1997 Registration
Statement. Factors which could cause results to differ include, but are not
limited to: changes in the confectionery and pasta business environment,
including actions of competitors and changes in consumer preferences; changes in
governmental laws and regulations, including income taxes; market demand for new
and existing products; and raw material pricing.
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
Winchester, Virginia - pasta 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, grocery and pasta 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.
ITEM 3. LEGAL PROCEEDINGS
The Corporation has no 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.
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 pages A-9 and A-10 of the Corporation's
Consolidated Financial Statements and Management's Discussion and Analysis
included in Appendix A to the Proxy Statement which is deemed to be part of the
Annual Report to Stockholders and which information is 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, 1997, found
in the section "Eleven-Year Consolidated Financial Summary" on pages A-34
through A-36 of the Corporation's Consolidated Financial Statements and
Management's Discussion and Analysis included in 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 h, 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-11 of the Corporation's Consolidated Financial Statements and
Management's Discussion and Analysis included in 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
Consolidated Financial Statements and Management's Discussion and Analysis
included in 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, 1997, 1996 and 1995. (Page A-12)
2. Consolidated Balance Sheets as of December 31, 1997 and 1996.
(Page A-13)
3. Consolidated Statements of Cash Flows for the years ended December
31, 1997, 1996 and 1995. (Page A-14)
4. Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1997, 1996 and 1995. (Page A-15)
5. Notes to Consolidated Financial Statements (Pages A-16
through A-31), including "Quarterly Data (Unaudited)." (Page A-31)
6. Report of Independent Public Accountants. (Page A-33)
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
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 MARCH 2, 1998
NAME AGE POSITIONS HELD DURING THE LAST FIVE YEARS
---- --- -----------------------------------------
K. L. Wolfe............... 59 Chairman of the Board and Chief Executive Officer (1993);
President and Chief Operating Officer (1985)
J. P. Viviano............. 59 President and Chief Operating Officer (1993); President, Hershey
Chocolate U.S.A., now part of Hershey Chocolate North America, a
division of Hershey Foods Corporation (1985)
W. F. Christ ............. 57 Senior Vice President, Chief Financial Officer and Treasurer
(1997); Senior Vice President and Chief Financial Officer
(1994); President, Hershey International, a division of Hershey
Foods Corporation (1988)
R. Brace ................ 54 Vice President, Operations (1997); Vice President,
Manufacturing, Hershey Chocolate North America (1995); Vice
President, Manufacturing, Hershey Chocolate U.S.A. (1987)
J. F. Carr .............. 53 President, Hershey Pasta and Grocery Group, a division of
Hershey Foods Corporation (1997); President, Hershey
International (1994); Vice President, Marketing, Hershey
Chocolate U.S.A. (1984)
K. B. Kwiat............... 58 Vice President, Manufacturing, Hershey Foods Corporation (1998);
Vice President, Manufacturing, Hershey Chocolate North America
(1997); Vice President, Manufacturing, Technical Services and
Logistics, Hershey International (1994); Vice President,
Technical, Hershey Chocolate U.S.A. (1992)
P. N. Le Maire .......... 40 President, Hershey International (1997). Mr. Le Maire was
previously employed by The Procter & Gamble Company (Procter &
Gamble) where he served in a succession of positions with export
responsibility. He was most recently Director, Global Export
and Special Operations with responsibility for restructuring
Procter & Gamble's worldwide export operations.
M. F. Pasquale............ 50 President, Hershey Chocolate North America (1995); President,
Hershey Chocolate U.S.A. (1994); Senior Vice President and Chief
Financial Officer (1988)
R. M. Reese .............. 48 Vice President, General Counsel and Secretary (1995); Vice
President and General Counsel (1992)
D. W. Tacka............... 44 Corporate Controller and Chief Accounting Officer (1995); Vice
President, Finance and Administration, Hershey Pasta Group, now
part of Hershey Pasta and Grocery Group (1989)
There are no family relationships among any of the above-named officers of
the Corporation.
Corporate Officers and Division Presidents are generally elected each year
at the organization meeting of the Board of Directors in April.
Reporting of 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."
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 "1997 Executive Compensation" and "Compensation of
Directors" 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
Consolidated Financial Statements and Management's Discussion and Analysis
included in 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, 1997, 1996 and 1995 is
filed herewith on the indicated page in response to Item 14(d):
Schedule II -- Valuation and Qualifying Accounts (Page 16)
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 on October 3, 1995, are incorporated by reference from
Exhibit 3 to the Corporation's Report on Form 10-Q for the quarter
ended October 1, 1995.
(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. 8.85% to 9.92% Medium-Term Notes due 1997-1998
b. 6.7% Notes due 2005
c. 6.95% Notes due 2007
d. 6.95% Notes due 2012
e. 8.8% Debentures due 2021
f. 7.2% Debentures due 2027
g. 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.
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. 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 bank and Citicorp Securities, Inc. and BA
Securities, Inc. as co-syndication agents, is incorporated by
reference from Exhibit 10.1 to the Corporation's Current Report
on Form 8-K dated January 29, 1996. The 364-Day Credit Agreement
was renewed in late 1997.
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 bank and Citicorp Securities, Inc. and BA
Securities, Inc. 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, Homestead, Inc., effective January 1, 1997.
Executive Compensation Plans
g. The restated Key Employee Incentive Plan is incorporated by
reference from the Corporation's Proxy Statement dated March 17,
1997 filed in connection with the April 29, 1997 Annual Meeting
of Stockholders.
h. Hershey Foods Corporation's Restated Supplemental Executive
Retirement Plan is 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.
i. Hershey Foods Corporation's Deferral Plan for Non-Management
Directors is incorporated by reference from Exhibit 10 to the
Corporation's Annual Report on Form 10-K for the fiscal year
ended December 31, 1992.
j. A form of the Benefit Protection Agreements entered into between
the Corporation and certain of its executive officers is
incorporated by reference from Exhibit 10 to the Corporation's
Annual Report on Form 10-K for the fiscal year ended December 31,
1994.
k. 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.
l. Hershey Foods 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.
(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, 1997, 1996, 1995, 1994 and 1993 is filed as Exhibit 12
hereto.
(13) Annual report to security holders
The Corporation's Consolidated Financial Statements and Management's
Discussion and Analysis is included in Appendix A to the Proxy
Statement and is filed as Exhibit 13 hereto.
(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, 1998, is filed as
Exhibit 23 hereto.
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 16, 1998 By 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 16, 1998
--------------
(K. L. Wolfe)
W. F. CHRIST Chief Financial Officer and Treasurer March 16, 1998
--------------
(W. F. Christ)
D. W. TACKA Chief Accounting Officer March 16, 1998
-------------
(D. W. Tacka)
J. P. VIVIANO Director March 16, 1998
--------------
(J. P. Viviano)
W. H. ALEXANDER Director March 16, 1998
---------------
(W. H. Alexander)
R. H. CAMPBELL Director March 16, 1998
--------------
(R. H. Campbell)
C. M. EVARTS Director March 16, 1998
------------
(C. M. Evarts)
B. GUITON HILL Director March 16, 1998
--------------
(B. Guiton Hill)
SIGNATURE TITLE DATE
--------- ----- ----
J. C. JAMISON Director March 16, 1998
-------------
(J. C. Jamison)
M. J. MCDONALD Director March 16, 1998
-----------------
(M. J. McDonald)
J. M. PIETRUSKI Director March 16, 1998
-----------------
(J. M. Pietruski)
V. A. SARNI Director March 16, 1998
--------------
(V. A. Sarni)
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE
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 1998 Annual Meeting of Stockholders incorporated by reference
in this Form 10-K, and have issued our report thereon dated January 28, 1998.
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, 1998
Schedule II
HERSHEY FOODS CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(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, 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
========= ======= ======== ======= ========
Year Ended December 31, 1996:
Reserves deducted in the
balance sheet from the assets
to which they apply:
Accounts Receivable -Trade ... $ 14,801 $ 1,238 $ 298 $(2,278) $ 14,059
========= ======= ======== ======= ========
Year Ended December 31, 1995:
Reserves deducted in the
balance sheet from the assets
to which they apply:
Accounts Receivable -Trade.... $ 13,972 $ 1,318 $ (432) $ (57) $ 14,801
========= ======= ======= ======= ========
- ------------------------------------------------------------------------------------------------------------
(a) Includes recoveries of amounts previously written off.