x
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
|
o
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
|
State
of Incorporation
|
IRS
Employer Identification No.
|
|||
Delaware
|
23-0691590
|
Part
I. Financial Information
|
Page
Number
|
Item
1. Consolidated Financial Statements (Unaudited)
|
|
Consolidated
Statements of Income
|
|
Three
months ended April 2, 2006 and April 3, 2005
|
3
|
Consolidated
Balance Sheets
|
|
April
2, 2006 and December 31, 2005
|
4
|
Consolidated
Statements of Cash Flows
|
|
Three
months ended April 2, 2006 and April 3, 2005
|
5
|
Notes
to Consolidated Financial Statements
|
6
|
Item
2. Management’s Discussion and Analysis of Results of Operations and
Financial Condition
|
13
|
Item
3. Quantitative and Qualitative Disclosures About Market
Risk
|
15
|
|
|
Item
4. Controls and Procedures
|
15
|
Part
II. Other Information
|
|
Item
2. Unregistered Sales of Equity Securities and Use Of
Proceeds
|
16
|
|
|
Item
4. Submission of Matters to a Vote of Security Holders
|
16
|
Item
6. Exhibits
|
17
|
For
the Three Months Ended
|
|||||||
April
2,
2006
|
April
3,
2005
|
||||||
Net
Sales
|
$
|
1,132,728
|
$
|
1,126,414
|
|||
Costs
and Expenses:
|
|||||||
Cost
of sales
|
702,878
|
695,584
|
|||||
Selling,
marketing and administrative
|
216,794
|
233,158
|
|||||
Business
realignment charge
|
3,331
|
-
|
|||||
|
|||||||
Total
costs and expenses
|
923,003
|
928,742
|
|||||
Income
before Interest and Income Taxes
|
209,725
|
197,672
|
|||||
Interest
expense, net
|
25,203
|
19,404
|
|||||
Income
before Income Taxes
|
184,522
|
178,268
|
|||||
Provision
for income taxes
|
63,554
|
65,246
|
|||||
Net
Income
|
$
|
120,968
|
$
|
113,022
|
|||
Earnings
Per Share - Basic - Common Stock
|
$
|
.52
|
$
|
.47
|
|||
Earnings
Per Share - Basic - Class B Common Stock
|
$
|
.47
|
$
|
.43
|
|||
Earnings
Per Share - Diluted
|
$
|
.50
|
$
|
.45
|
|||
Average
Shares Outstanding-Basic - Common Stock
|
178,892
|
185,715
|
|||||
Average
Shares Outstanding-Basic - Class B Common Stock
|
60,818
|
60,829
|
|||||
Average
Shares Outstanding - Diluted
|
243,147
|
250,323
|
|||||
Cash
Dividends Paid per Share:
|
|||||||
Common
Stock
|
$
|
.2450
|
$
|
.2200
|
|||
Class
B Common Stock
|
$
|
.2200
|
$
|
.2000
|
|||
ASSETS
|
April
2,
2006
|
December
31,
2005
|
Current
Assets:
|
|||||||
Cash
and cash equivalents
|
$
|
43,940
|
$
|
67,183
|
|||
Accounts
receivable - trade
|
414,807
|
559,289
|
|||||
Inventories
|
720,380
|
610,284
|
|||||
Deferred
income taxes
|
70,347
|
78,196
|
|||||
Prepaid
expenses and other
|
109,665
|
93,988
|
|||||
Total
current assets
|
1,359,139
|
1,408,940
|
|||||
Property,
Plant and Equipment, at cost
|
3,484,650
|
3,458,416
|
|||||
Less-accumulated
depreciation and amortization
|
(1,836,525
|
)
|
(1,799,278
|
)
|
|||
Net
property, plant and equipment
|
1,648,125
|
1,659,138
|
|||||
Goodwill
|
487,666
|
487,338
|
|||||
Other
Intangibles
|
141,380
|
142,626
|
|||||
Other
Assets
|
590,222
|
597,194
|
|||||
Total
assets
|
$
|
4,226,532
|
$
|
4,295,236
|
|||
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|||||||
Current
Liabilities:
|
|||||||
Accounts
payable
|
$
|
177,907
|
$
|
167,812
|
|||
Accrued
liabilities
|
417,734
|
507,843
|
|||||
Accrued
income taxes
|
51,996
|
23,453
|
|||||
Short-term
debt
|
898,669
|
819,059
|
|||||
Current
portion of long-term debt
|
189,662
|
56
|
|||||
Total
current liabilities
|
1,735,968
|
1,518,223
|
|||||
Long-term
Debt
|
752,781
|
942,755
|
|||||
Other
Long-term Liabilities
|
402,544
|
412,929
|
|||||
Deferred
Income Taxes
|
403,456
|
400,253
|
|||||
Total
liabilities
|
3,294,749
|
3,274,160
|
|||||
Stockholders'
Equity:
|
|||||||
Preferred
Stock, shares issued:
|
|||||||
none
in 2006 and 2005
|
---
|
---
|
|||||
Common
Stock, shares issued: 299,083,266 in 2006 and 2005
|
299,083
|
299,083
|
|||||
Class
B Common Stock, shares issued: 60,818,478 in 2006 and
2005
|
60,818
|
60,818
|
|||||
Additional
paid-in capital
|
264,250
|
252,374
|
|||||
Unearned
ESOP compensation
|
(2,395
|
)
|
(3,193
|
)
|
|||
Retained
earnings
|
3,710,211
|
3,646,179
|
|||||
Treasury-Common
Stock shares at cost:
|
|||||||
122,519,956
in 2006 and 119,377,690 in 2005
|
(3,397,581
|
)
|
(3,224,863
|
)
|
|||
Accumulated
other comprehensive loss
|
(2,603
|
)
|
(9,322
|
)
|
|||
Total
stockholders' equity
|
931,783
|
1,021,076
|
|||||
Total
liabilities and stockholders' equity
|
$
|
4,226,532
|
$
|
4,295,236
|
For
the Three Months Ended
|
|||||||
April
2,
2006
|
April
3,
2005
|
||||||
Cash
Flows Provided from (Used by) Operating
Activities
|
|||||||
Net
Income
|
$
|
120,968
|
$
|
113,022
|
|||
Adjustments
to Reconcile Net Income to Net Cash
|
|||||||
Provided
from Operations:
|
|||||||
Depreciation
and amortization
|
48,135
|
49,250
|
|||||
Stock-based
compensation expense, net of tax of $4,644
and
$6,143, respectively
|
8,857
|
10,642
|
|||||
Excess tax benefits from exercise of stock options | (1,631 | ) | (11,823 | ) | |||
Deferred
income taxes
|
6,973
|
1,041
|
|||||
Business
realignment initiatives, net of tax of $518
|
1,214
|
-
|
|||||
Contributions
to pension plans
|
(8,003
|
)
|
(45,981
|
)
|
|||
Changes
in assets and liabilities:
|
|||||||
Accounts
receivable - trade
|
144,482
|
118,939
|
|||||
Inventories
|
(114,996
|
)
|
(70,243
|
)
|
|||
Accounts
payable
|
10,095
|
19,162
|
|||||
Other
assets and liabilities
|
(50,104
|
)
|
(22,053
|
)
|
|||
Net
Cash Flows Provided from Operating Activities
|
165,990
|
161,956
|
|||||
Cash
Flows Provided from (Used by) Investing
Activities
|
|||||||
Capital
additions
|
(36,191
|
)
|
(30,213
|
)
|
|||
Capitalized
software additions
|
(2,067
|
)
|
(2,025
|
)
|
|||
Net
Cash Flows (Used by) Investing Activities
|
(38,258
|
)
|
(32,238
|
)
|
|||
Cash
Flows Provided from (Used by) Financing
Activities
|
|||||||
Net
increase in short-term debt
|
79,610
|
86,447
|
|||||
Repayment
of long-term debt
|
(58
|
)
|
(1,066
|
)
|
|||
Cash
dividends paid
|
(56,936
|
)
|
(52,760
|
)
|
|||
Exercise
of stock options
|
8,754
|
56,693
|
|||||
Excess
tax benefits from exercise of stock options
|
1,631
|
11,823
|
|||||
Repurchase
of Common Stock
|
(183,976
|
)
|
(267,632
|
)
|
|||
Net
Cash Flows (Used by) Financing Activities
|
(150,975
|
)
|
(166,495
|
)
|
|||
Decrease
in Cash and Cash Equivalents
|
(23,243
|
)
|
(36,777
|
)
|
|||
Cash
and Cash Equivalents, beginning of period
|
67,183
|
54,837
|
|||||
Cash
and Cash Equivalents, end of period
|
$
|
43,940
|
$
|
18,060
|
|||
Interest
Paid
|
$
|
38,954
|
$
|
32,679
|
|||
Income
Taxes Paid
|
$
|
33,785
|
$
|
15,272
|
1.
|
BASIS
OF PRESENTATION
|
2.
|
STOCK
COMPENSATION PLANS
|
For
the three months ended
April
2, 2006
|
||||||||||
Stock
Options
|
Shares
|
Weighted-Average
ExercisePrice
|
Weighted-Average
Remaining
Contractual
Term
|
|||||||
Outstanding
at beginning of year
|
13,725,113
|
|
$37.83
|
|||||||
Granted
|
1,580,400
|
|
$52.29
|
|||||||
Exercised
|
(296,269
|
)
|
|
$29.55
|
||||||
Forfeited
|
(44,350
|
)
|
|
$46.30
|
||||||
Outstanding as
of April 2, 2006
|
14,964,894
|
|
$39.50
|
6.8
years
|
||||||
Options
exercisable as of April 2, 2006
|
8,980,175
|
$33.43
|
5.6
years
|
Performance
Stock Units and Restricted Stock Units
|
For
tthree
months
ended
April
2, 2006
|
Weighted-average
grant date fair value for equity awards or market value for liability
awards
|
|||||
Outstanding
at beginning of year
|
1,191,367
|
|
$47.01
|
||||
Granted
|
185,328
|
|
$55.65
|
||||
Performance
assumption change
|
34,198
|
|
$52.23
|
||||
Vested
|
(82,131
|
)
|
|
$37.04
|
|||
Forfeited
|
(8,806
|
)
|
|
$45.28
|
|||
Outstanding
as of April 2, 2006
|
1,319,956
|
|
$47.27
|
3.
|
INTEREST
EXPENSE
|
For
the Three Months Ended
|
|||||||
April
2,
2006
|
April
3,
2005
|
||||||
(in
thousands of dollars)
|
|||||||
Interest
expense
|
$
|
25,701
|
$
|
19,669
|
|||
Interest
income
|
(491
|
)
|
(265
|
)
|
|||
Capitalized
interest
|
(7
|
)
|
-
|
||||
Interest
expense, net
|
$
|
25,203
|
$
|
19,404
|
4.
|
BUSINESS
REALIGNMENT INITIATIVES
|
Accrued
Liabilities
|
Balance
12/31/05
|
First
Quarter
Utilization
|
New
charges
during
the
First
Quarter
|
Balance
4/02/06
|
|||||||||
|
(in
thousands of dollars)
|
||||||||||||
VWRP
|
$
|
31,883
|
$
|
(5,966
|
)
|
$
|
825
|
$
|
26,742
|
||||
Facility
rationalization
|
—
|
(1,281
|
)
|
1,281
|
—
|
||||||||
Streamline
international operations
|
5,888
|
(3,024
|
)
|
659
|
3,523
|
||||||||
Total
|
$
|
37,771
|
$
|
(10,271
|
)
|
$
|
2,765
|
$
|
30,265
|
5.
|
EARNINGS
PER SHARE
|
For
the Three Months Ended
|
|||||||
April
2,
2006
|
April
3,
2005
|
||||||
(in
thousands except per share amounts)
|
|||||||
Net
income
|
$
|
120,968
|
$
|
113,022
|
|||
Weighted-average
shares - Basic
|
|||||||
Common
Stock
|
178,892
|
185,715
|
|||||
Class
B Common Stock
|
60,818
|
60,829
|
|||||
Total
weighted-average shares - Basic
|
239,710
|
246,544
|
|||||
Effect
of dilutive securities:
|
|||||||
Employee
stock options
|
2,848
|
3,483
|
|||||
Performance
and restricted stock units
|
589
|
296
|
|||||
Weighted-average
shares - Diluted
|
243,147
|
250,323
|
|||||
Earnings
Per Share - Basic
|
|||||||
Common
Stock
|
$
|
.52
|
$
|
.47
|
|||
Class
B Common Stock
|
$
|
.47
|
$
|
.43
|
|||
Earnings
Per Share - Diluted
|
$
|
.50
|
$
|
.45
|
6.
|
DERIVATIVE
INSTRUMENTS AND HEDGING
ACTIVITIES
|
7.
|
COMPREHENSIVE
INCOME
|
For
the Three Months Ended April 2, 2006
|
||||||
Pre-Tax
Amount
|
Tax
(Expense)
Benefit
|
After-Tax
Amount
|
||||
(in
thousands of dollars)
|
Net
income
|
$
|
120,968 | |||||||
Other
comprehensive income (loss):
|
|||||||||
Foreign
currency translation adjustments
|
$
|
(484
|
)
|
$
|
—
|
(484
|
)
|
||
Minimum
pension liability adjustments, net
of tax
|
118
|
(42
|
)
|
76
|
|||||
Cash
flow hedges:
|
|||||||||
Gains on cash flow hedging derivatives
|
10,289
|
(3,745
|
)
|
6,544
|
|||||
Reclassification
adjustments
|
915
|
(332
|
)
|
583
|
|||||
Total
other comprehensive income
|
$
|
10,838
|
$
|
(4,119
|
)
|
6,719
|
|||
Comprehensive
income
|
$
|
127,687
|
For
the Three Months Ended April 3, 2005
|
||||||
Pre-Tax
Amount
|
Tax
(Expense)
Benefit
|
After-Tax
Amount
|
||||
(in
thousands of dollars)
|
Net
income
|
$ | 113,022 | |||||||
Other
comprehensive income (loss):
|
|||||||||
Foreign
currency translation adjustments
|
$
|
(2,628
|
)
|
$
|
—
|
(2,628
|
)
|
||
Cash
flow hedges:
|
|||||||||
Gains on cash flow hedging derivatives
|
10,533
|
(3,856
|
)
|
6,677
|
|||||
Reclassification
adjustments
|
(6,219
|
)
|
2,282
|
(3,937
|
)
|
||||
Total
other comprehensive income
|
$
|
1,686
|
$
|
(1,574
|
)
|
112
|
|||
Comprehensive
income
|
$
|
113,134
|
|
April
2,
2006
|
December
31,
2005
|
||
(in
thousands of dollars)
|
Foreign
currency translation adjustments
|
$
|
(241
|
)
|
$
|
243
|
||
Minimum
pension liability adjustments
|
(3,284
|
)
|
(3,360
|
)
|
|||
Cash
flow hedges
|
922
|
(6,205
|
)
|
||||
Total
accumulated other comprehensive loss
|
$
|
(2,603
|
)
|
$
|
(9,322
|
)
|
8.
|
INVENTORIES
|
April
2,
2006
|
December
31,
2005
|
|||
(in
thousands of dollars)
|
Raw
materials
|
$
|
262,500
|
$
|
202,826
|
|||
Goods
in process
|
99,287
|
92,923
|
|||||
Finished
goods
|
437,784
|
385,798
|
|||||
Inventories
at FIFO
|
799,571
|
681,547
|
|||||
Adjustment
to LIFO
|
(79,191
|
)
|
(71,263
|
)
|
|||
Total
inventories
|
$
|
720,380
|
$
|
610,284
|
9.
|
SHORT-TERM
DEBT
|
10.
|
LONG-TERM
DEBT
|
11.
|
FINANCIAL
INSTRUMENTS
|
12.
|
PENSION
AND OTHER POST-RETIREMENT BENEFIT
PLANS
|
Pension
Benefits
For
the Three Months Ended
|
Other
Benefits
For
the Three Months Ended
|
|||||||
April
2,
2006
|
April
3,
2005
|
April
2,
2006
|
April
3,
2005
|
|||||
(in
thousands of dollars)
|
||||||||
Service
cost
|
$
|
14,509
|
$
|
12,728
|
$
|
1,442
|
$
|
1,193
|
Interest
cost
|
14,125
|
13,803
|
4,611
|
4,494
|
||||
Expected
return on plan assets
|
(25,568)
|
(21,202)
|
-
|
-
|
||||
Amortization
of prior service cost
|
1,146
|
1,099
|
213
|
(371)
|
||||
Amortization
of unrecognized
|
||||||||
transition balance
|
4
|
78
|
-
|
-
|
||||
Recognized
net actuarial loss
|
3,269
|
2,508
|
768
|
908
|
||||
Administrative
expenses
|
302
|
250
|
-
|
-
|
||||
Net
periodic benefits cost
|
$
|
7,787
|
$
|
9,264
|
$
|
7,034
|
$
|
6,224
|
13.
|
SHARE
REPURCHASES
|
Period
|
(a)
Total
Number
of
Shares
Purchased
|
(b)
Average
Price
Paid per
Share
|
(c)
Total Number of
Shares
Purchased
as
Part of Publicly
Announced
Plans or
Programs
|
(d)
Approximate
Dollar
Value of
Shares
that May Yet
Be
Purchased Under
the
Plans or
Programs
(1)
|
(in
thousands of dollars)
|
||||
January
1 through
January
29, 2006
|
404,368
|
$54.79
|
404,368
|
$540,714
|
January
30 through
February
26, 2006
|
1,772,518
|
$51.92
|
1,654,800
|
$455,001
|
February
27 through
April
2, 2006
|
1,328,452
|
$52.53
|
1,234,500
|
$390,097
|
Total
|
3,505,338
|
3,293,668
|
Name
|
Votes
For
|
Votes
Withheld
|
Jon
A. Boscia
|
762,479,491
|
2,939,878
|
Robert
H. Campbell
|
756,615,321
|
8,804,048
|
Robert
F. Cavanaugh
|
761,870,340
|
3,549,029
|
Gary
P. Coughlan
|
762,470,601
|
2,948,768
|
Harriet
Edelman
|
762,277,115
|
3,142,254
|
Richard
H. Lenny
|
756,736,007
|
8,638,362
|
Mackey
J. McDonald
|
739,167,774
|
26,251,594
|
Marie
J. Toulantis
|
762,768,335
|
2,951,034
|
Name
|
Votes
For
|
Votes
Withheld
|
Bonnie
G. Hill
|
148,682,529
|
10,067,240
|
Alfred
F. Kelly, Jr.
|
155,818,939
|
2,930,830
|
Exhibit
Number
|
Description
|
|
12.1
|
Statement
showing computation of ratio of earnings to fixed charges for the
three
months ended April 2, 2006 and April 3, 2005.
|
|
31.1
|
Certification
of Richard H. Lenny, Chief Executive Officer, pursuant to Section
302 of
the Sarbanes-Oxley Act of 2002.
|
|
31.2
|
Certification
of David J. West, Chief Financial Officer, pursuant to Section 302
of the
Sarbanes-Oxley Act of 2002.
|
|
32.1*
|
Certification
of Richard H. Lenny, Chief Executive Officer, and David J. West,
Chief
Financial Officer, pursuant to Section 906 of the Sarbanes-Oxley
Act of
2002.
|
|
*Pursuant
to Securities and Exchange Commission Release No. 33-8212, this
certification will be treated as “accompanying” this Quarterly Report on
Form 10-Q and not “filed” as part of such report for purposes of Section
18 of the Exchange Act or otherwise subject to the liability of Section
18
of the Exchange Act, and this certification will not be deemed to
be
incorporated by reference into any filing under the Securities Act
of
1933, as amended, or the Exchange Act, except to the extent that
the
Company specifically incorporates it by reference.
|
||
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.
|
|
THE HERSHEY COMPANY
|
|
|
(Registrant)
|
Date: May
10, 2006
|
/s/David
J.
West
David
J. West
Senior
Vice President,
Chief
Financial Officer
|
Date: May
10, 2006
|
/s/David
W.
Tacka
David
W. Tacka
Vice
President,
Chief
Accounting Officer
|
Exhibit
12.1
|
Computation
of Ratio of Earnings to Fixed Charges
|
Exhibit
31.1
|
Certification
of Richard H. Lenny, Chief Executive Officer, pursuant to Section
302 of
the Sarbanes-Oxley Act of 2002
|
Exhibit
31.2
|
Certification
of David J. West, Chief Financial Officer, pursuant to Section
302 of the
Sarbanes-Oxley Act of 2002
|
Exhibit
32.1
|
Certification
of Richard H. Lenny, Chief Executive Officer, and David J. West,
Chief
Financial Officer, pursuant to Section 906 of the Sarbanes-Oxley
Act of
2002
|