UNITED STATES SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549
FORM 10-Q
[X]
For the quarterly period ended September 29, 2002
OR
[ ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE ACT OF 1934
For the transition period from ___________to__________
Commission file number: 1-183
HERSHEY FOODS CORPORATION100 Crystal A DriveHershey, PA 17033Registrant's telephone number:717-534-6799
State of IncorporationDelaware
IRS Employer Identification No.23-0691590
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 - 105,720,354 shares, as of October 25, 2002. Class B Common Stock, $1 par value - 30,422,308 shares, as of October 25, 2002.
Exhibit Index - Page 21
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HERSHEY FOODS CORPORATION CONSOLIDATED STATEMENTS OF INCOME (in thousands except per share amounts) For the Three Months Ended -------------------------- September 29, September 30, 2002 2001 ------- -------Net Sales $1,152,321 $1,178,909 --------- -----------Costs and Expenses:Cost of sales 717,197 753,403 Selling, marketing and administrative 218,052 216,519 Business realignment charge, net 8,536 - Gain on sale of business - (19,237) --------- ---------- Total costs and expenses 943,785 950,685 --------- ----------Income before Interest and Income Taxes 208,536 228,224 Interest expense, net 14,120 18,147 --------- ----------Income before Income Taxes 194,416 210,077 Provision for income taxes 71,351 89,315 --------- ----------Net Income $ 123,065 $ 120,762 ========= ==========Net Income Per Share-Basic $ .90 $ .89 ========= ==========Net Income Per Share-Diluted $ .89 $ .88 ========= ==========Average Shares Outstanding-Basic 137,179 135,869 ========= ==========Average Shares Outstanding-Diluted 138,346 137,213 ========= ==========Cash Dividends Paid per Share:Common Stock $ .3275 $ .3025 ========= ========== Class B Common Stock $ .2950 $ .2725 ========= ========== The accompanying notes are an integral part of these statements.
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HERSHEY FOODS CORPORATION CONSOLIDATED STATEMENTS OF INCOME (in thousands except per share amounts) For the Nine Months Ended ------------------------- September 29, September 30, 2002 2001 -------- ------Net Sales $ 2,964,289 $ 2,984,237 ------------ -----------Costs and Expenses:Cost of sales 1,851,212 $1,908,616 Selling, marketing and administrative 616,668 622,927 Business realignment charge, net 19,274 - Gain on sale of business - (19,237) ------------ ----------- Total costs and expenses 2,487,154 2,512,306 ------------ -----------Income before Interest and Income Taxes 477,135 471,931 Interest expense, net 45,448 52,371 ------------ -----------Income before Income Taxes 431,687 419,560 Provision for income taxes 158,429 167,453 ------------ -----------Net Income $ 273,258 $ 252,107 ============ ===========Net Income Per Share-Basic $ 2.00 $ 1.85 ============ ===========Net Income Per Share-Diluted $ 1.98 $ 1.83 ============ ===========Average Shares Outstanding-Basic 136,923 136,343 ============ ===========Average Shares Outstanding-Diluted 138,165 137,768 ============ ===========Cash Dividends Paid per Share:Common Stock $ .9325 $ .8625 ============ =========== Class B Common Stock $ .8400 $ .7775 ============ =========== The accompanying notes are an integral part of these statements.
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HERSHEY FOODS CORPORATION CONSOLIDATED BALANCE SHEETS SEPTEMBER 29, 2002 AND DECEMBER 31, 2001 (in thousands of dollars) ASSETS 2002 2001 ------ ------Current Assets:Cash and cash equivalents $ 119,860 $ 134,147 Accounts receivable - trade 676,847 361,726 Inventories 593,231 512,134 Deferred income taxes - 96,939 Prepaid expenses and other 69,031 62,595 ------------- ------------ Total current assets 1,458,969 1,167,541 ------------- ------------Property, Plant and Equipment, at cost 2,931,809 2,900,756 Less-accumulated depreciation and amortization (1,455,749) (1,365,855) ------------- ------------ Net property, plant and equipment 1,476,060 1,534,901 ------------- ------------Goodwill 378,035 388,702Other Intangibles 40,022 40,426Other Assets 92,951 115,860 ------------- ------------ Total assets $ 3,446,037 $ 3,247,430 ============= ============LIABILITIES AND STOCKHOLDERS' EQUITYCurrent Liabilities:Accounts payable $ 131,607 $ 133,049 Accrued liabilities 398,301 462,901 Accrued income taxes 75,545 2,568 Short-term debt 8,182 7,005 Current portion of long-term debt 350 921 ------------- ------------ Total current liabilities 613,985 606,444Long-term Debt 868,491 876,972Other Long-term Liabilities 370,939 361,041Deferred Income Taxes 222,522 255,769 ------------- ----------- Total liabilities 2,075,937 2,100,226 ------------- ------------Stockholders' Equity:Preferred Stock, shares issued: none in 2002 and 2001 --- --- Common Stock, shares issued: 149,526,564 in 2002 and 149,517,064 in 2001 149,526 149,516 Class B Common Stock, shares issued: 30,424,308 in 2002 and 30,433,808 in 2001 30,424 30,434 Additional paid-in capital 186 3,263 Unearned ESOP compensation (13,572) (15,967) Retained earnings 2,903,792 2,755,333 Treasury-Common Stock shares at cost: 43,580,410 in 2002 and 44,311,870 in 2001 (1,668,052) (1,689,243) Accumulated other comprehensive loss (32,204) (86,132) ------------- ------------- Total stockholders' equity 1,370,100 1,147,204 ------------- ------------ Total liabilities and stockholders' equity $ 3,446,037 $ 3,247,430 ============= ============ The accompanying notes are an integral part of these balance sheets.
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HERSHEY FOODS CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands of dollars) For the Nine Months Ended ------------------------- September 29, September 30, 2002 2001 ---- ----Cash Flows Provided from (Used by) Operating ActivitiesNet Income $ 273,258 $ 252,107 Adjustments to Reconcile Net Income to Net Cash Provided from Operations: Depreciation and amortization 137,454 141,699 Deferred income taxes (2,385) 10,415 Business realignment initiatives 19,274 - Gain on sale of business, net of tax of $18,134 - (1,103) Changes in assets and liabilities, net of effects from business acquisition and divestitures: Accounts receivable - trade (315,121) (168,729) Inventories (75,197) (127,659) Accounts payable (1,442) 13,766 Other assets and liabilities 136,960 163,249 ------------ ---------- Net Cash Flows Provided from Operating Activities 172,801 283,745 ------------ ----------Cash Flows Provided from (Used by) Investing ActivitiesCapital additions (74,451) (114,608) Capitalized software additions (6,964) (6,003) Business acquisition - (17,143) Proceeds from business divestiture 12,000 59,900 Other, net 28,907 16,661 ------------ ---------- Net Cash Flows (Used by) Investing Activities (40,508) (61,193) ------------ ----------Cash Flows Provided from (Used by) Financing ActivitiesNet increase (decrease) in short-term debt 1,177 (20,391) Long-term borrowings - 354 Repayment of long-term debt (9,169) (578) Cash dividends paid (124,799) (114,597) Exercise of stock options 84,328 21,509 Incentive plan transactions (98,117) (51,328) Repurchase of Common Stock - (40,322) ------------ ---------- Net Cash Flows (Used by) Financing Activities (146,580) (205,353) ------------ ---------- (Decrease) Increase in Cash and Cash Equivalents (14,287) 17,199 Cash and Cash Equivalents, beginning of period 134,147 31,969 ------------ ---------- Cash and Cash Equivalents, end of period $ 119,860 $ 49,168 ============ ==========Interest Paid $ 57,000 $ 63,105 ============ ========== Income Taxes Paid $ 32,449 $ 53,818 ============ ========== The accompanying notes are an integral part of these statements.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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New 2002 charges Six-Months 2002 Balance 1st Qtr YTD 3rd Qtr Balance Accrued Liabilities 12/31/01 2002 Utilization Utilization 9/29/02 ------------------- -------- ---- ----------- ----------- -------(In thousands of dollars) Asset management improvements $ 2,700 $ - $ (1,768) $ (247) $ 685 Product line rationalization 15,529 115 (10,416) (2,409) 2,819 Supply chain efficiency improvements 8,300 100 (1,107) (105) 7,188 Voluntary work force reduction program 8,860 - (7,191) (787) 882 ------- ----- ------- ------ ------ Total $ 35,389 $ 215 $(20,482) $ (3,548) $11,574 ======= ===== ======= ====== =======
2002 Six-Months 2002 Balance YTD 3rd Qtr Balance Asset Impairment Write-down 12/31/01 Utilization Utilization 9/29/02 --------------------------- -------- ----------- ----------- -------(In thousands of dollars) Asset management improvements $ 2,600 $ (1,844) $ - $ 756 Product line rationalization 5,000 (1,201) 42 3,841 Supply chain efficiency improvements 37,700 (8,033) (620) 29,047 -------- ------- ---- ------ Total $ 45,300 $(11,078) $ (578) $33,644 ======== ======= ==== ======
For the Nine Months Ended ------------------------- September 29, 2002 September 30, 2001 ------------------ ------------------ (in thousands of dollars)Interest expense $ 48,968 $ 55,666 Interest income (2,776) (1,862) Capitalized interest (744) (1,433) ------- -------- Interest expense, net $ 45,448 $ 52,371 ======= =======
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For the Three Months Ended For the Nine Months Ended -------------------------- ------------------------- 9/29/02 9/30/01 9/29/02 9/30/01 ------- ------- ------- ------- (in thousands of dollars except per share amounts)Net income $ 123,065 $ 120,762 $ 273,258 $ 252,107 ========= ======== ======= ======== Weighted-average shares-basic 137,179 135,869 136,923 136,343 Effect of dilutive securities: Employee stock options 1,076 1,285 1,151 1,366 Performance and restricted stock units 91 59 91 59 --------- -------- -------- -------- Weighted-average shares - diluted 138,346 137,213 138,165 137,768 ========= ======== ======== ======== Net income per share - basic $ 0.90 $ 0.89 $ 2.00 $ 1.85 ========= ======== ======== ======== Net income per share-diluted $ 0.89 $ 0.88 $ 1.98 $ 1.83 ========= ======== ======== ========
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For the Three Months Ended For the Nine Months Ended -------------------------- ------------------------- 9/29/02 9/30/01 9/29/02 9/30/01 ------- ------- ------- ------- (in thousands of dollars except per share amounts)Reported net income: $ 123,065 $ 120,762 $ 273,258 $ 252,107 Add back: Goodwill amortization 3,232 8,794 Add back: Trademark amortization 436 1,161 --------- --------- --------- -------- Adjusted net income $ 123,065 $ 124,430 $ 273,258 $ 262,062 ========= ========= ========= ========Basic earnings per share:Reported net income $ .90 $ .89 $ 2.00 $ 1.85 Goodwill amortization .02 .06 Trademark amortization .01 .01 --------- --------- -------- -------- Adjusted net income $ .90 $ .92 $ 2.00 $ 1.92 ========= ========= ======== ========Diluted earnings per share:Reported net income $ .89 $ .88 $ 1.98 $ 1.83 Goodwill amortization .02 .06 Trademark amortization .01 .01 --------- --------- -------- -------- Adjusted net income $ .89 $ .91 $ 1.98 $ 1.90 ========= ========= ======== ========
For the Three Months Ended For the Nine Months Ended -------------------------- ------------------------- 9/29/02 9/30/01 9/29/02 9/30/01 ------- ------- ------- ------- (in thousands of dollars)Net income $ 123,065 $ 120,762 $ 273,258 $ 252,107 -------- --------- -------- -------- Other comprehensive income (loss): Foreign currency translation adjustments (15,098) (10,200) (17,210) (10,391) Minimum pension liability adjustments, net of tax (30,727) - (43,132) - Gains on cash flow hedging derivatives, net of tax 69,827 8,424 128,133 49,253 Add: Reclassification adjustments, net of tax (6,900) 5,267 (13,863) 13,982 -------- --------- --------- -------- Other comprehensive income 17,102 3,491 53,928 52,844 -------- --------- --------- -------- Comprehensive income $ 140,167 $ 124,253 $ 327,186 $ 304,951 ======== ========= ======== ========
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Foreign Minimum Gains (Losses) Accumulated Currency Pension on Cash Flow Other Translation Liability Hedging Reclassification Comprehensive Adjustments Adjustments Derivatives Adjustments Income (Loss) - -------------------------------------------------------------------------------------------------------------(In thousands of dollars) Balance as of 12/31/01 $(62,545) $(35,135) $ 11,548 $ - $(86,132) Current period credit (charge), gross (17,210) (72,007) 202,248 (21,900) 91,131 Income tax benefit (expense) - 28,875 (74,115) 8,037 (37,203) --------- --------- -------- -------- -------- Balance as of 9/29/02 $(79,755) $(78,267) $139,681 $(13,863) $(32,204) ========= ========= ======== ======== ========
September 29, 2002 December 31, 2001 ------------------ ----------------- (in thousands of dollars)Raw materials $ 195,969 $ 160,343 Goods in process 56,646 51,184 Finished goods 392,994 354,100 ----------- ---------- Inventories at FIFO 645,609 565,627 Adjustment to LIFO (52,378) (53,493) ----------- ---------- Total inventories $ 593,231 $ 512,134 =========== ==========
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Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition
Consolidated net sales for the third quarter decreased from $1,178.9 million in 2001 to $1,152.3 million in 2002. The decrease from the prior year was a result of higher promotional allowances, returns, discounts, and allowances as well as the rationalization of certain under-performing brands, including the divestiture of Heidebrands in May 2002, the discontinuance and subsequent licensing of the Corporation’s aseptically packaged drink products in the United States, and the divestiture of the Luden’s throat drop business in September 2001. Sluggishness in several international markets, specifically Canada and Brazil, also contributed to the lower sales in the quarter. These factors which resulted in lower sales were partially offset by increased sales of key confectionery brands in the United States, including new products and line extensions, and selected confectionery selling price increases.
The consolidated gross margin increased from 36.1% in 2001 to 37.8% in 2002. The increase reflected decreased costs for certain major raw materials, primarily cocoa and peanuts, and packaging materials, a more profitable sales mix and selected confectionery selling price increases. The impact of these items was partially offset by higher promotional spending, and returns, discounts, and allowances, which were higher as a percent of sales compared to the prior year. Selling, marketing and administrative expenses increased by 1% in 2002, primarily reflecting the impact of $17.3 million of expenses related to the exploration of the sale of the Corporation. Excluding the impact of these expenses in 2002 and goodwill amortization in 2001, selling, marketing and administrative costs were 6% lower in 2002. The reduction was due primarily to lower marketing spending as well as lower salary expense associated with reduced staffing resulting from the Corporation’s voluntary work force reduction program.
Net interest expense in the third quarter of 2002 was $4.0 million less than the comparable period of 2001, primarily reflecting a decrease in short-term interest expense due to reduced average short-term borrowings and lower average short-term borrowing rates.
Net income for the third quarter increased $2.3 million, or 2%, from 2001 to 2002, and net income per share - diluted increased $.01, or 1%. Excluding the after-tax effect of the business realignment initiatives and expenses related to the exploration of sale recorded in 2002, as well as the after-tax effect of goodwill amortization and the gain on the sale of the Luden’s business in 2001, net income for the third quarter increased $16.5 million, or 13%, from 2001 to 2002, and net income per share - diluted increased $.11, or 12%.
Results of Operations - First Nine Months 2002 vs. First Nine Months 2001
Consolidated net sales for the first nine months decreased from $2,984.2 million in 2001 to $2,964.3 million in 2002. The sales decrease primarily reflected higher promotion allowances and returns, discounts, and allowances, the rationalization of certain under-performing brands, including the divestitures of the Heidebrands in May 2002 and the Luden’s throat drop business in September 2001, and the timing of the acquisition of the Nabisco Inc. gum and mint business which resulted in incremental sales in the first nine months of 2001 compared to the same period of 2002. These decreases were partially offset by increases in sales of key confectionery brands in the United States, including new products and line extensions, and selected confectionery selling price increases, as well as incremental sales from Visagis, the Brazilian chocolate and confectionery business acquired in July 2001.
The consolidated gross margin increased from 36.0% in 2001 to 37.5% in 2002. The increase in gross margin primarily reflected decreased costs for certain major raw materials, primarily cocoa, milk, and peanuts, and packaging materials, higher profitability resulting from the mix of confectionery items sold in 2002 compared with sales in 2001 and selected confectionery selling price increases. These increases in gross margin were partially offset by higher promotion allowances and returns, discounts, and allowances, both of which were higher as a percent of sales compared to the prior year. Selling, marketing and administrative expenses decreased by 1% in 2002, primarily as a result of savings from the business realignment initiatives and the elimination of goodwill amortization in 2002, offset by $17.3 million of expenses incurred to explore the sale of the Corporation. Excluding the impact of goodwill amortization in 2001 and the expenses incurred to explore the Corporation’s sale, selling, marketing, and administrative expenses in 2002 were 2% lower than 2001.
Net interest expense in the first nine months of 2002 was $6.9 million less than the comparable period of 2001, primarily reflecting a decrease in short-term interest expense due to reduced average short-term borrowings and lower average short-term borrowing rates.
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Net income for the first nine months of 2002 was $273.3 million compared to $252.1 million in 2001 and net income per share-diluted was $1.98 per share compared to $1.83 per share in the prior year. Excluding the after-tax effect of the business realignment initiatives and costs related to the exploration of the sale of the Corporation recorded in 2002, as well as the after-tax effect of goodwill amortization and the gain on the sale of the Luden’s business in 2001, net income for the first nine months increased $36.3 million, or 14%, from 2001 to 2002 and net income per share - diluted increased $.26, or 14%.
Business Realignment Initiatives
In late October 2001, the Corporation’s Board of Directors approved a plan to improve the efficiency and profitability of the Corporation’s operations. The plan included asset management improvements, product line rationalization, supply chain efficiency improvements and a voluntary work force reduction program (“VWRP”). As of September 29, 2002, the total estimated costs for the business realignment initiatives are expected to be in a range of $310.0 million, as announced in January 2002, to $320.0 million, as higher pension settlement costs associated with the VWRP which are recorded as incurred, are expected to more than offset the impact of the greater than expected proceeds from the sale of certain assets. A favorable adjustment of $4.4 million resulting from the greater than expected proceeds was recorded during the second quarter and included in the net business realignment charge. As of September 29, 2002, there have been no significant changes to the estimated savings for the business realignment initiatives. The major components of these initiatives remain on schedule for completion by the end of 2002.
Asset management improvements included the decision to outsource the manufacture of certain ingredients and the related removal and disposal of machinery and equipment related to the manufacture of these ingredients. As a result of this outsourcing, the Corporation was able to significantly reduce raw material inventories, primarily cocoa beans and cocoa butter, in the fourth quarter of 2001. The remaining portion of the project was substantially completed during the first quarter of 2002.
Product line rationalization plans included the sale or exit of certain businesses, the discontinuance of certain non-chocolate confectionery products and the realignment of the Corporation’s sales organizations. Costs associated with the realignment of the sales organizations related primarily to sales office closings and terminating the use of certain sales brokers. During the first nine months of 2002, sales offices were closed as planned and the use of certain sales brokers was discontinued. During the second quarter, the sale of a group of Hershey’s non-chocolate confectionery candy brands to Farley’s & Sathers Candy Company, Inc. was completed. Included in the transaction were the HEIDE®, JUJYFRUITS®, WUNDERBEANS® and AMAZIN’ FRUIT® trademarked confectionery brands, as well as the rights to sell CHUCKLES®branded products, under license. Also, during the second quarter the Corporation discontinued and subsequently licensed the sale of its aseptically packaged drink products in the United States. Sales associated with these brands during the first six months and third quarter of 2002 are included in Note 2.
To improve supply chain efficiency and profitability, three manufacturing facilities, a distribution center and certain other facilities were planned to be closed. These included manufacturing facilities in Denver, Colorado; Pennsburg, Pennsylvania; and Palmyra, Pennsylvania and a distribution center and certain minor facilities located in Oakdale, California. During the first quarter of 2002, the manufacturing facility in Palmyra, Pennsylvania was closed and additional costs were recorded, as incurred, relating to retention payments. In addition, asset disposals relating to the closure of the three manufacturing plants were begun. During the second quarter, operations utilizing the distribution center in Oakdale, California ceased. Asset write-offs relating to the closure of the three manufacturing plants continued during the third quarter.
In October 2001, the Corporation offered the VWRP to certain eligible employees in the United States, Canada and Puerto Rico in order to reduce staffing levels and improve profitability. The VWRP consisted of an early retirement program which provided enhanced pension, post-retirement and certain supplemental benefits and an enhanced mutual separation program which provided increased severance and temporary medical benefits. A reduction of approximately 500 employees occurred during the first nine months of 2002 as a result of the VWRP. Additional pension settlement costs of $8.6 million, $6.4 million and $8.5 million before tax were recorded in the first, second and third quarters, respectively, of 2002, principally associated with lump sum payments of pension benefits.
Liquidity and Capital Resources
Historically, the Corporation’s major source of financing has been cash generated from operations. Domestic seasonal working capital needs, which typically peak during the summer months, generally have been met by issuing commercial paper. During the first nine months of 2002, the Corporation’s cash and cash equivalents decreased by $14.3 million. Also
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In order to improve the funded status of the Corporation’s domestic pension plans, a contribution of $75.0 million was made in February 2001. Additional contributions of $95.0 million, $75.0 million and $54.7 million were made in December 2001 and in March and June 2002, respectively, to fund payments related to the early retirement program and to improve the funded status. These contributions were funded by cash from operations. Depending upon the market performance of pension plan assets, the Corporation anticipates additional contributions of $75.0 million to $100.0 million during the fourth quarter of 2002.
The ratio of current assets to current liabilities was 2.4:1 as of September 29, 2002, and 1.9:1 as of December 31, 2001. 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 39% as of September 29, 2002, and 44% as of December 31, 2001.
Other Matters
On July 25, 2002, the Corporation confirmed that the Milton Hershey School Trust, which controls 77% of the combined voting power of the Corporation’s Common Stock and Class B Common Stock, had informed the Corporation that it had decided to diversify its holdings and in this regard wanted Hershey Foods to explore a sale of the entire Corporation. On September 17, 2002, the Milton Hershey School Trust instructed the Corporation to terminate the sale process.
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 taxes; market demand for new and existing products; changes in raw material and other costs; the Corporation’s ability to implement improvements to and reduce costs associated with the Corporation’s distribution operations; pension cost factors, such as actuarial assumptions, return on pension plan assets, and employee retirement decisions; and the Corporation’s ability to sell certain assets at targeted values.
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The potential loss in fair value of foreign exchange forward contracts and interest rate swap agreements resulting from a hypothetical near-term adverse change in market rates of ten percent increased from $.3 million as of December 31, 2001, to $.5 million as of September 29, 2002. The market risk resulting from a hypothetical adverse market price movement of ten percent associated with the estimated average fair value of net commodity positions decreased from $4.7 million as of December 31, 2001, to $1.1 million as of September 29, 2002. Market risk represents 10% of the estimated average fair value of net commodity positions at four dates prior to the end of each period.
As required by Rule 13a-15 under the Securities Exchange Act of 1934 (the “Exchange Act”), within the 90 days prior to the filing date of this report, the Corporation conducted an evaluation of the effectiveness of the design and operation of the Corporation’s disclosure controls and procedures. This evaluation was carried out under the supervision and with the participation of the Corporation’s management, including the Corporation’s Chief Executive Officer and Chief Financial Officer. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Corporation’s disclosure controls and procedures are effective. There have been no significant changes in the Corporation’s internal controls or in other factors which could significantly affect internal controls subsequent to the date of the evaluation.
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in the Corporation’s reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the Corporation’s reports filed under the Exchange Act is accumulated and communicated to management, including the Corporation’s Chief Executive Officer and Chief Financial Officer as appropriate, to allow timely decisions regarding required disclosure.
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Items 1 through 5 have been omitted as not applicable.
a) Exhibits The following items are attached and incorporated herein by reference: Exhibit 10.1 - Amended and Restated Key Employee Incentive Plan. Exhibit 10.2 - Amended and Restated Deferred Compensation Plan. Exhibit 10.3 - Amended and Restated Supplemental Executive Retirement Plan. Exhibit 10.4 - Executive Benefits Protection Plan (Group 3A). Exhibit 12 - Statement showing computation of ratio of earnings to fixed charges for the nine months ended September 29, 2002 and September 30, 2001.b) Reports on Form 8-KA report on Form 8-K was filed on July 25, 2002, confirming that the Milton Hershey School Trust, which controls 77% of the voting power of the Corporation’s Common Stock, informed the Corporation that it had decided to diversify its holdings and in this regard wanted Hershey Foods to explore a sale of the entire Corporation.
The following items are attached and incorporated herein by reference:
Exhibit 10.1 - Amended and Restated Key Employee Incentive Plan.
Exhibit 10.2 - Amended and Restated Deferred Compensation Plan.
Exhibit 10.3 - Amended and Restated Supplemental Executive Retirement Plan.
Exhibit 10.4 - Executive Benefits Protection Plan (Group 3A).
Exhibit 12 - Statement showing computation of ratio of earnings to fixed charges for the nine months ended September 29, 2002 and September 30, 2001.
b) Reports on Form 8-K
A report on Form 8-K was filed on July 25, 2002, confirming that the Milton Hershey School Trust, which controls 77% of the voting power of the Corporation’s Common Stock, informed the Corporation that it had decided to diversify its holdings and in this regard wanted Hershey Foods to explore a sale of the entire Corporation.
A report on Form 8-K was furnished on August 7, 2002, stating that Richard H. Lenny, Chief Executive Officer of the Corporation and Frank Cerminara, Chief Financial Officer of the Corporation, each furnished to the Securities and Exchange Commission personal certifications pursuant to 18 U.S.C. Section 1350.
A report on Form 8-K was furnished on August 8, 2002, stating that the Corporation issued a press release recommending that its stockholders reject an unsolicited, below-market mini tender offer made by TRC Capital Corporation for up to 1.64% of Hershey Foods Corporation’s outstanding shares.
A report on Form 8-K was furnished on August 13, 2002, to include sworn statements filed by Richard H. Lenny, Chief Executive Officer of the Corporation and Frank Cerminara, Chief Financial Officer of the Corporation, pursuant to the Commission’s order under Section 21(a) (1) of the Securities Exchange Act of 1934 No. 4-460.
A report on Form 8-K was filed on September 18, 2002, confirming that the Milton Hershey School Trust’s Board of Directors had voted to instruct the Corporation to terminate the sale process that was initiated at the direction of the Trust.
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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 November 12, 2002
/s/ Frank CerminaraFrank CerminaraSenior Vice President,Chief Financial Officer
/s/ David W. TackaDavid W. TackaVice President, Corporate Controller andChief Accounting Officer
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I, Richard H. Lenny, certify that:
a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and
c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and
Date: November 12, 2002
/s/ Richard H. LennyRichard H. LennyChief Executive Officer
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I, Frank Cerminara, certify that:
/s/ Frank CerminaraFrank CerminaraChief Financial Officer
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Exhibit 10.1 Amended and Restated Key Employee Incentive Plan
Exhibit 10.2 Amended and Restated Deferred Compensation Plan
Exhibit 10.3 Amended and Restated Supplemental Executive Retirement Plan
Exhibit 10.4 Executive Benefits Protection Plan (Group 3A)
Exhibit 12 Computation of Ratio of Earnings to Fixed Charges
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