SECURITIES AND EXCHANGE COMMISSION
[X] | Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
[ ] | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
Hershey, Pennsylvania 17033
(717) 534-6799
Title of each class: | Name of each exchange on 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) |
Class B Common Stock, one dollar par value—$12,848,379 as of July 3, 2005. 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 July 3, 2005. |
Common Stock, one dollar par value—178,131,189 shares, as of February 17, 2006. |
Class B Common Stock, one dollar par value—60,818,478 shares, as of February 17, 2006. |
Item 1. | BUSINESS |
ALMOND JOY candy bar | HERSHEY’S MINIATURES | |||||
ALMOND JOY,HEATH, HERSHEY’S, | chocolate bars | |||||
KIT KAT, MR. GOODBAR, REESE’S, | HERSHEY’S NUGGETS chocolates | |||||
ROLO, andYORK BITES candies | JOLLY RANCHER candy | |||||
HERSHEY’S KISSABLES brand chocolate candies | KIT KAT wafer bar | |||||
HERSHEY’S KISSES brand milk chocolates | MOUNDS candy bar | |||||
filled with caramel | PAYDAY peanut caramel bar | |||||
HERSHEY’S KISSES brand milk chocolates | REESE’S peanut butter cups | |||||
HERSHEY’S milk chocolate bar | REESE’S PIECES candy | |||||
HERSHEY’S milk chocolate bar with almonds | TAKE5 candy bar | |||||
HERSHEY’S KISSES brand milk chocolates | TWIZZLERS candy | |||||
filled with peanut butter | YORK peppermint pattie |
HERSHEY’S, HERSHEY’S S’MORES and | MAUNA LOA dry roasted macadamias | |||||
REESE’S SNACK BARZ rice and | MAUNA LOA honey roasted macadamias | |||||
marshmallow bars | MAUNA LOA macadamia mixed nuts | |||||
HERSHEY’S SMART ZONE nutrition bars | MAUNA LOA macadamias and almonds | |||||
HERSHEY’S, ALMOND JOY, REESE’S | MAUNA LOA milk chocolate macadamias | |||||
andYORK cookies |
BREATH SAVERS mints | ICE BREAKERS mints and chewing gum | |||||
BUBBLE YUM bubble gum | KOOLERZ chewing gum | |||||
ICE BREAKERS LIQUID ICE mints |
5TH AVENUE candy bar | KIT KAT BIG KAT wafer bar | |||||
ALMOND JOY,HERSHEY’S,REESE’S, | KRACKEL chocolate bar | |||||
andYORK SWOOPS candies | MILK DUDS candy | |||||
CADBURY chocolates | MR. GOODBAR chocolate bar | |||||
CARAMELLO candy bar | REESE’S NUTRAGEOUS candy bar | |||||
FAST BREAK candy bar | REESE’S SUGAR FREE peanut butter | |||||
GOOD & PLENTY candy | cups | |||||
HEATH toffee bar | REESE’S BIG CUP peanut butter cups | |||||
HERSHEY’S COOKIES ‘N’ CREME candy | REESESTICKS wafer bars | |||||
bar | ROLO caramels in milk chocolate | |||||
HERSHEY’S HUGS chocolates | SKOR toffee bar | |||||
HERSHEY’S POT OF GOLD boxed | SPECIAL DARK chocolate bar | |||||
chocolates | SYMPHONY milk chocolate bar | |||||
HERSHEY’S S’MORES candy bar | WHATCHAMACALLIT candy bar | |||||
HERSHEY’S SUGAR FREE chocolate | WHOPPERS malted milk balls | |||||
candy | YORK SUGAR FREE peppermint pattie | |||||
HERSHEY’S Extra Dark candy | ZAGNUT candy bar | |||||
JOLLY RANCHER SUGAR FREE hard | ZERO candy bar | |||||
candy |
HERSHEY’S BAKE SHOPPE baking chips | HERSHEY’S syrup | |||||
and pieces | HERSHEY’S toppings | |||||
HERSHEY’S chocolate milk mix | REESE’S baking chips | |||||
HERSHEY’S cocoa | REESE’S peanut butter | |||||
HERSHEY’S hot cocoa mix |
in 2005. The Company also has an agreement with Societe des Produits Nestle SA, which licenses the Company to manufacture and distributeKIT KAT andROLO confectionery products in the United States. The Company’s rights under this agreement are extendible on a long-term basis at the Company’s option, subject to certain conditions, including minimum unit volume sales. In 2005, the minimum unit volume requirements were exceeded. The Company has an agreement with an affiliate of Huhtamäki Oy (“Huhtamaki”) pursuant to which it licenses the use of certain trademarks, includingGOOD & PLENTY, HEATH, JOLLY RANCHER, MILK DUDS, PAYDAY andWHOPPERS for confectionery products worldwide. The Company’s rights under this agreement are extendible on a long-term basis at the Company’s option.
Cocoa Futures Contract Prices (cents per pound) | |||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2005 | 2004 | 2003 | 2002 | 2001 | |||||||||||||||||||
Annual Average | 68.3 | 68.7 | 77.8 | 76.9 | 47.1 | ||||||||||||||||||
High | 78.7 | 76.8 | 99.8 | 96.7 | 57.9 | ||||||||||||||||||
Low | 63.5 | 62.1 | 65.6 | 60.3 | 41.5 | ||||||||||||||||||
Source: International Cocoa Organization Quarterly Bulletin of Cocoa Statistics |
corn sweeteners, natural gas, fuel oil and certain dairy products, price risks are also managed by entering into futures contracts. At the present time, active futures contracts are not available for use in pricing the Company’s other major raw material requirements. Futures contracts are used in combination with forward purchasing of cocoa, sugar, corn sweetener, natural gas and certain dairy product requirements principally to take advantage of market fluctuations that provide more favorable pricing opportunities and flexibility in sourcing these raw materials and energy requirements. Fuel oil futures contracts are used to minimize price fluctuations associated with the Company’s transportation costs. The Company’s commodity procurement practices are intended to reduce the risk of future price increases and to provide visibility to future costs, but may also potentially limit the ability to benefit from possible price decreases.
research and development expense is contained in Note 1 of the Notes to the Consolidated Financial Statements (Item 8. Financial Statements and Supplementary Data).
nominal fee approximating the Company’s reasonable cost to provide such copy or copies. Requests for copies should be addressed to The Hershey Company, Attn: Investor Relations Department, 100 Crystal A Drive, Hershey, Pennsylvania 17033-0810.
Item 1A. | RISK FACTORS |
settlement losses depending on the magnitude of such withdrawals. Although the fair value of our pension plan assets exceeded pension benefits obligations as of December 31, 2005, a significant increase in future funding requirements could have a negative impact on our results of operations, financial condition and cash flows.
• | Unforeseen global economic and environmental changes resulting in business interruption, supply constraints, inflation, deflation or decreased demand; |
• | Difficulties and costs associated with complying with, and enforcing remedies under, a wide variety of complex laws, treaties and regulations; |
• | Different regulatory structures and unexpected changes in regulatory environments; |
• | Political and economic instability, including the possibility of civil unrest; |
• | Nationalization of our properties by foreign governments; |
• | Tax rates that may exceed those in the United States and earnings that may be subject to withholding requirements and incremental taxes upon repatriation; |
• | Potentially negative consequences from changes in tax laws; |
• | The imposition of tariffs, quotas, trade barriers, other trade protection measures and import or export licensing requirements; |
• | Increased costs, disruptions in shipping or reduced availability of freight transportation; and |
• | The impact of currency exchange rate fluctuations between the U.S. dollar and foreign currencies. |
Item 2. | PROPERTIES |
Hershey, Pennsylvania—confectionery and grocery products (3 principal plants) Lancaster, Pennsylvania—confectionery products Oakdale, California—confectionery and grocery products Robinson, Illinois—confectionery, snack and grocery products Stuarts Draft, Virginia—confectionery, snack and grocery products |
Smiths Falls, Ontario—confectionery and grocery products |
Edwardsville, Illinois (owned by the Company) Palmyra, Pennsylvania (owned by the Company) Redlands, California (leased) |
Mississauga, Ontario (leased) |
Item 3. | LEGAL PROCEEDINGS |
Item 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS |
Item 5. | MARKET FOR THE REGISTRANT’S COMMON EQUITY |
Dividends Paid Per Share | Common Stock Price Range* | ||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Common Stock | Class B Stock | High | Low | ||||||||||||||||
2005 | |||||||||||||||||||
1st Quarter | $ | .2200 | $ | .2000 | $ | 64.72 | $ | 53.15 | |||||||||||
2nd Quarter | .2200 | .2000 | 67.37 | 59.40 | |||||||||||||||
3rd Quarter | .2450 | .2200 | 64.80 | 54.85 | |||||||||||||||
4th Quarter | .2450 | .2200 | 60.23 | 52.49 | |||||||||||||||
Total | $ | .9300 | $ | .8400 |
Dividends Paid Per Share | Common Stock Price Range* | ||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Common Stock | Class B Stock | High | Low | ||||||||||||||||
2004 | |||||||||||||||||||
1st Quarter | $ | .1975 | $ | .1788 | $ | 43.90 | $ | 37.28 | |||||||||||
2nd Quarter | .1975 | .1788 | 46.50 | 40.55 | |||||||||||||||
3rd Quarter | .2200 | .2000 | 49.94 | 45.03 | |||||||||||||||
4th Quarter | .2200 | .2000 | 56.75 | 45.98 | |||||||||||||||
Total | $ | .8350 | $ | .7576 |
* | NYSE-Composite Quotations for Common Stock by calendar quarter. |
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) | ||||||||||||||||||
October 3 through October 30, 2005 | 1,083,200 | $ | 57.23 | 1,012,100 | $105,054 | |||||||||||||
October 31 through November 27, 2005 | 350,900 | $ | 55.28 | 279,100 | $ 89,701 | |||||||||||||
November 28 through December 31, 2005 | 519,828 | $ | 56.14 | 477,028 | $562,869 | |||||||||||||
Total | 1,953,928 | $ | 56.59 | 1,768,228 | $562,869 |
(1) | In April 2005, the Company’s Board of Directors approved a new share repurchase program authorizing the repurchase of up to $250 million of the Company’s Common Stock in the open market, or through privately negotiated transactions. In December 2005, the Company’s Board of Directors approved an additional $500 million share repurchase program. |
Item 6. | SELECTED FINANCIAL DATA |
and per share statistics
5-Year Compound Growth Rate | | 2005 | | 2004 | | 2003 | | 2002 | | 2001 | | 2000 | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Summary of Operations | ||||||||||||||||||||||
Net Sales(a) | 4.8 | % | $ | 4,835,974 | 4,429,248 | 4,172,551 | 4,120,317 | 4,137,217 | 3,820,416 | |||||||||||||
Cost of Sales(b) | 3.7 | % | $ | 2,965,540 | 2,680,437 | 2,544,726 | 2,561,052 | 2,668,530 | 2,471,151 | |||||||||||||
Selling, Marketing and Administrative(a) (b) | 4.4 | % | $ | 912,986 | 867,104 | 841,105 | 853,048 | 859,967 | 737,674 | |||||||||||||
Business Realignment and Asset Impairments Charge | $ | 96,537 | — | 23,357 | 27,552 | 228,314 | — | |||||||||||||||
Gain on Sale of Business(c) | $ | — | — | 8,330 | — | 19,237 | — | |||||||||||||||
Interest Expense, Net | 3.0 | % | $ | 87,985 | 66,533 | 63,529 | 60,722 | 69,093 | 76,011 | |||||||||||||
Provision for Income Taxes(b) | 6.1 | % | $ | 279,682 | 237,273 | 258,849 | 226,786 | 131,228 | 207,805 | |||||||||||||
Income before Cumulative Effect of Accounting Change(b) | 8.5 | % | $ | 493,244 | 577,901 | 449,315 | 391,157 | 199,322 | 327,775 | |||||||||||||
Cumulative Effect of Accounting Change | $ | — | — | 7,368 | — | — | — | |||||||||||||||
Net Income(b) | 8.5 | % | $ | 493,244 | 577,901 | 441,947 | 391,157 | 199,322 | 327,775 | |||||||||||||
Earnings Per Share before Cumulative Effect of Accounting Change(b): | ||||||||||||||||||||||
—Basic—Common Stock | 11.2 | % | $ | 2.07 | 2.33 | 1.75 | 1.46 | .75 | 1.22 | |||||||||||||
—Basic—Class B Stock | 11.2 | % | $ | 1.87 | 2.12 | 1.58 | 1.32 | .67 | 1.10 | |||||||||||||
—Diluted | 11.0 | % | $ | 1.99 | 2.25 | 1.70 | 1.42 | .72 | 1.18 | |||||||||||||
Weighted-Average Shares Outstanding: | ||||||||||||||||||||||
—Basic—Common Stock | 183,747 | 193,037 | 201,768 | 212,219 | 211,612 | 213,764 | ||||||||||||||||
—Basic—Class B Stock | 60,821 | 60,844 | 60,844 | 60,856 | 60,878 | 60,888 | ||||||||||||||||
—Diluted | 248,292 | 256,934 | 264,532 | 275,429 | 275,391 | 276,731 | ||||||||||||||||
Dividends Paid on Common Stock | 8.1 | % | $ | 170,147 | 159,658 | 144,985 | 133,285 | 122,790 | 115,209 | |||||||||||||
Per Share | 11.5 | % | $ | .93 | .835 | .7226 | .63 | .5825 | .54 | |||||||||||||
Dividends Paid on Class B Stock | 11.5 | % | $ | 51,088 | 46,089 | 39,701 | 34,536 | 31,960 | 29,682 | |||||||||||||
Per Share | 11.5 | % | $ | .84 | .7576 | .6526 | .5675 | .525 | .4875 | |||||||||||||
Net Income as a Percent of Net Sales, GAAP Basis(a) (b) | 10.2 | % | 13.0 | % | 10.6 | % | 9.5 | % | 4.8 | % | 8.6 | % | ||||||||||
Adjusted Net Income as a Percent of Net Sales(a) (b) (d) | 11.7 | % | 11.7 | % | 11.0 | % | 10.3 | % | 9.3 | % | 8.8 | % | ||||||||||
Depreciation | 7.4 | % | $ | 200,132 | 171,229 | 158,933 | 155,384 | 153,493 | 140,168 | |||||||||||||
Advertising(a) | (4.4 | )% | $ | 125,023 | 137,931 | 145,387 | 162,874 | 187,244 | 156,319 | |||||||||||||
Payroll | 3.1 | % | $ | 647,825 | 614,037 | 585,419 | 594,372 | 614,197 | 557,342 | |||||||||||||
Year-end Position and Statistics | ||||||||||||||||||||||
Capital Additions | 5.5 | % | $ | 181,069 | 181,728 | 218,650 | 132,736 | 160,105 | 138,333 | |||||||||||||
Capitalized Software Additions | 23.1 | % | $ | 13,236 | 14,158 | 18,404 | 11,836 | 9,845 | 4,686 | |||||||||||||
Total Assets(b) | 4.5 | % | $ | 4,295,236 | 3,812,784 | 3,587,151 | 3,486,956 | 3,248,752 | 3,450,206 | |||||||||||||
Short-term debt and current portion of long-term debt | 26.0 | % | $ | 819,115 | 622,320 | 12,509 | 28,124 | 7,926 | 258,123 | |||||||||||||
Long-term Portion of Debt | 1.4 | % | $ | 942,755 | 690,602 | 968,499 | 851,800 | 876,972 | 877,654 | |||||||||||||
Stockholders’ Equity(b) | (3.3 | )% | $ | 1,021,076 | 1,137,102 | 1,325,710 | 1,410,443 | 1,183,097 | 1,206,812 | |||||||||||||
Operating Return on Average Stockholders’ Equity, GAAP Basis(b) | 45.7 | % | 46.9 | % | 32.3 | % | 30.2 | % | 16.7 | % | 28.1 | % | ||||||||||
Adjusted Operating Return on Average Stockholders’ Equity(b) (d) | 52.6 | % | 42.0 | % | 33.6 | % | 32.7 | % | 32.1 | % | 28.8 | % | ||||||||||
Operating Return on Average Invested Capital, GAAP Basis(b) | 23.7 | % | 25.9 | % | 18.4 | % | 17.6 | % | 10.2 | % | 13.9 | % | ||||||||||
Adjusted Operating Return on Average Invested Capital(b) (d) | 27.0 | % | 23.3 | % | 19.1 | % | 18.9 | % | 18.4 | % | 16.0 | % | ||||||||||
Full-time Employees | 13,750 | 13,700 | 13,100 | 13,700 | 14,400 | 14,300 | ||||||||||||||||
Stockholders’ Data | ||||||||||||||||||||||
Outstanding Shares of Common Stock and Class B Stock at Year-end(d) | 240,524 | 246,588 | 259,059 | 268,440 | 271,278 | 272,563 | ||||||||||||||||
Market Price of Common Stock at Year-end(d) | 11.4 | % | $ | 55.25 | 55.54 | 38.50 | 33.72 | 33.85 | 32.19 | |||||||||||||
Range During Year | $ | 67.37–52.49 | 56.75–37.28 | 39.33–30.35 | 39.75–28.23 | 35.08–27.57 | 33.22–18.88 |
(a) | All years have been restated in accordance with final FASB Emerging Issues Task Force consensuses reached on various issues regarding the reporting of certain sales incentives. |
(b) | All years have been adjusted to reflect the adoption of Statement of Financial Accounting Standards No. 123 (Revised 2004),Share-Based Payment, using the modified retrospective application method. |
(c) | Includes the gain on the sale of gum brands in 2003 and the gain on the sale of theLuden’s throat drops business in 2001. |
(d) | Adjusted Net Income as a Percent of Net Sales, Operating Return on Average Stockholders’ Equity and Operating Return on Average Invested Capital have been calculated using Net Income, excluding the after-tax impacts of the elimination of amortization of indefinite-lived intangibles for all years, the reduction of the provision for income taxes resulting from the adjustment of the income tax contingency reserves in 2004, the after-tax effect of the 2005, 2003, 2002 and 2001 Business Realignment and Asset Impairments Charges, the after-tax effect of incremental expenses to explore the possible sale of the Company in 2002, the 2003 and 2001 Gain on the Sale of Businesses and the 2000 gain on the sale of certain corporate aircraft. |
Item 7. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
margin by a total of 1.1 percentage points. Improved price realization, primarily from selling price increases and improved profitability for the Company’s international businesses, more than offset the impact of higher raw material, labor and overhead costs and sales of certain new products which currently have lower margins.
adoption of SFAS No. 123R. Items affecting comparability include the impact of business realignment initiatives in 2005 and 2003, a reduction of the income tax provision in 2004 as a result of adjustments to income tax contingency reserves, and a gain on the sale of business in 2003. The Company believes the presentation of income excluding such items provides additional information to investors to facilitate the comparison of past and present operations which are indicative of its ongoing operations. The Company excludes such items in evaluating key measures of performance internally and in assessing the impact of known trends and uncertainties on its business. The Company believes that this presentation provides a more balanced view of the underlying dynamics of the business. Financial results including the impact of the reduction to the provision for income taxes, business realignment initiatives and the gain on the sale of business, over the three-year period may be insufficient in facilitating a complete understanding of the business as a whole and ascertaining the likelihood that past performance is indicative of future performance.
For the years ended December 31, | 2005 | | 2004 | | 2003 | |||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In thousands of dollars except per share amounts | Per share- diluted | Per share- diluted | Per share- diluted | |||||||||||||||||||||
Income before cumulative effect of accounting change | $ | 493,244 | $ | 1.99 | $ | 577,901 | $ | 2.25 | $ | 449,315 | $ | 1.70 | ||||||||||||
Items affecting comparability after tax: | ||||||||||||||||||||||||
Business realignment and asset impairments included in cost of sales | 13,397 | .05 | — | — | 1,287 | — | ||||||||||||||||||
Business realignment and asset impairments, net | 60,624 | .24 | — | — | 14,201 | .05 | ||||||||||||||||||
Gain on sale of business | — | — | — | — | (5,706 | ) | (.02 | ) | ||||||||||||||||
Tax provision adjustment | — | — | (61,081 | ) | (.24 | ) | — | — | ||||||||||||||||
Income excluding items affecting comparability | $ | 567,265 | $ | 2.28 | $ | 516,820 | $ | 2.01 | $ | 459,097 | $ | 1.73 |
spending as a percentage of sales, as well as efficiency improvements in manufacturing operations. The margin improvements were partially offset by increases in raw material costs.
Accrued Liabilities | | Balance 10/02/05 | | Fourth Quarter Utilization | | New charges during Fourth Quarter | | Balance 12/31/05 | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In thousands of dollars | ||||||||||||||||||
VWRP | $ | 33,726 | $ | (5,650 | ) | $3,807 | $31,883 | |||||||||||
Facility rationalization | 4,725 | (6,615 | ) | 1,890 | — | |||||||||||||
Streamline international operations | 5,390 | (890 | ) | 1,388 | 5,888 | |||||||||||||
Total | $ | 43,841 | $ | (13,155 | ) | $7,085 | $ | 37,771 |
Francisco. The combined purchase price for Scharffen Berger and Joseph Schmidt was $47.1 million, with the final amount subject to upward adjustment not to exceed $61.1 million to be determined based upon actual sales growth through 2007. Together, these companies have combined annual sales of approximately $25 million.
incentive compensation. The increase in deferred taxes was primarily associated with the impact of pension contributions made during 2005.
$818.4 million. Over the three year period, cash used by financing activities totaled $1.2 billion. Financing activities included cash used for the repurchase of common stock of $1.7 billion and cash dividends of $611.7 million. These cash outflows were partially offset by cash provided from net short-term and long-term borrowings of $761.5 million and cash provided from the exercise of stock options of $216.4 million. Cash equivalents decreased by $230.6 million over the three-year period.
additions, and funding contributions to the Company’s pension plans, future business acquisitions and working capital requirements. The Company expects to execute $500 million of term financing during 2006 under the January 2006 Registration Statement.
Payments Due by Year | |||||||||||||||||||||||||||||||
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(In thousands of dollars) | |||||||||||||||||||||||||||||||
Contractual Obligations | 2006 | 2007 | 2008 | 2009 | 2010 | Thereafter | Total | ||||||||||||||||||||||||
Unconditional Purchase Obligations | $ | 977,500 | $ | 343,800 | $ | 101,200 | $ | 54,800 | $ | — | $ | — | $ | 1,477,300 | |||||||||||||||||
Non-cancelable Operating Leases | 13,119 | 11,819 | 10,433 | 7,078 | 5,461 | 10,938 | 58,848 | ||||||||||||||||||||||||
Long-term Debt | 56 | 190,000 | 147 | 136 | 142 | 752,330 | 942,811 | ||||||||||||||||||||||||
Total Obligations | $ | 990,675 | $ | 545,619 | $ | 111,780 | $ | 62,014 | $ | 5,603 | $ | 763,268 | $ | 2,478,959 |
consolidation of these entities, expenses were classified as interest expense associated with the corresponding long-term debt. The consolidation of these entities resulted in an increase to interest expense of $2.8 million in 2003, offset by a decrease in rental expense for these facilities included in cost of sales.
Maturity Date | |||||||||||||||||||||||||||||||||||
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(In thousands of dollars except for rates) | |||||||||||||||||||||||||||||||||||
2006 | 2007 | 2008 | 2009 | 2010 | Thereafter | Total | Fair Value | ||||||||||||||||||||||||||||
Long-term Debt | $ | 56 | $ | 190,000 | $ | 147 | $ | 136 | $ | 142 | $ | 752,330 | $ | 942,811 | $ | 1,051,127 | |||||||||||||||||||
Interest Rate | 2.0 | % | 6.3 | % | 2.0 | % | 2.0 | % | 2.0 | % | 6.6 | % | 6.5 | % |
by obtaining market quotes for future contracts with similar terms, adjusted where necessary for maturity differences. The fair value of foreign exchange forward contracts and options was an asset of $.4 million and $4.4 million as of December 31, 2005 and 2004, respectively. The potential net loss in fair value of foreign exchange forward contracts and options of ten percent resulting from a hypothetical near-term adverse change in market rates was $.1 million and $.4 million as of December 31, 2005 and 2004, respectively. The Company’s risk related to the foreign exchange contracts and options is limited to the cost of replacing the contracts at prevailing market rates.
opportunity cost resulting from the hypothetical adverse price movement. The fair values of net commodity positions were based upon quoted market prices or estimated future prices including estimated carrying costs corresponding with the future delivery period.
For the years ended December 31, | | 2005 | | 2004 | | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars | Fair Value | | Market Risk (Hypothetical 10% Change) | | Fair Value | | Market Risk (Hypothetical 10% Change) | ||||||||||||
Highest long position | $ | 16.3 | $ | 1.6 | $ | 128.2 | $ | 12.8 | |||||||||||
Lowest long position | (204.5 | ) | 20.5 | (30.1 | ) | 3.0 | |||||||||||||
Average position (long) | (126.3 | ) | 12.6 | 62.7 | 6.3 |
customers and evaluating the impact of reasonably likely changes in economic conditions that may impact credit risks. Estimates with regard to the collectibility of accounts receivable are reasonably likely to change in the future.
percentage point decrease in the discount rate assumption would have increased 2005 net periodic pension benefits cost by $11.1 million and a one percentage point increase in the discount rate assumption would have decreased 2005 net periodic pension benefits cost by $10.4 million. The Company’s discount rate represents the estimated rate at which pension benefits could be effectively settled. In order to estimate this rate, the Company considers the yields of high quality securities which are generally considered to be those receiving a rating no lower than the second highest given by a recognized rating agency. The duration of such securities is reasonably comparable to the duration of the pension plan liabilities.
2004, the after-tax effect of the business realignment initiatives in 2005, 2003, 2002 and 2001, the after-tax effect of incremental expenses to explore the possible sale of the Company in 2002, the after-tax gains on the sale of a group of the Company’s gum brands in 2003, the sale of theLuden’s throat drops business in 2001, the sale of corporate aircraft in 2000, and the after-tax effect of interest on long-term debt. Over the most recent six-year period, the adjusted return has ranged from 16.0% in 2000 to 27.0% in 2005.
as the Company continues to leverage its existing manufacturing capacity and distribution infrastructure. A reduction in selling, marketing and administrative expense as a percentage of sales is anticipated from leveraging the Company’s sales force capabilities without increasing costs and from combining various administrative functions in the Company’s North American operations. These initiatives are expected to more than offset the impact of higher input costs, primarily for raw materials, transportation and employee benefits.
Item 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Item 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
PAGE | ||
---|---|---|
Responsibility for Financial Statements | 39 | |
Report of Independent Registered Public Accounting Firm on Consolidated Financial Statements | 40 | |
Consolidated Statements of Income for the years ended December 31, 2005, 2004 and 2003 | 41 | |
Consolidated Balance Sheets as of December 31, 2005 and 2004 | 42 | |
Consolidated Statements of Cash Flows for the years ended December 31, 2005, 2004 and 2003 | 43 | |
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2005, 2004 and 2003 | 44 | |
Notes to Consolidated Financial Statements | 45 |
Richard H. Lenny | David J. West | ||
Chairman of the Board, President | Senior Vice President | ||
and Chief Executive Officer | Chief Financial Officer |
The Hershey Company:
February 27, 2006
CONSOLIDATED STATEMENTS OF INCOME
For the years ended December 31, | 2005 | | 2004 | | 2003 | |||||
---|---|---|---|---|---|---|---|---|---|---|
In thousands of dollars except per share amounts | ||||||||||
Net Sales | $ | 4,835,974 | $ | 4,429,248 | $ | 4,172,551 | ||||
Costs and Expenses: | ||||||||||
Cost of sales | 2,965,540 | 2,680,437 | 2,544,726 | |||||||
Selling, marketing and administrative | 912,986 | 867,104 | 841,105 | |||||||
Business realignment and asset impairments, net | 96,537 | — | 23,357 | |||||||
Gain on sale of business | — | — | (8,330 | ) | ||||||
Total costs and expenses | 3,975,063 | 3,547,541 | 3,400,858 | |||||||
Income before Interest and Income Taxes | 860,911 | 881,707 | 771,693 | |||||||
Interest expense, net | 87,985 | 66,533 | 63,529 | |||||||
Income before Income Taxes | 772,926 | 815,174 | 708,164 | |||||||
Provision for income taxes | 279,682 | 237,273 | 258,849 | |||||||
Income before Cumulative Effect of Accounting Change | 493,244 | 577,901 | 449,315 | |||||||
Cumulative effect of accounting change, net of $4,933 tax benefit | — | — | 7,368 | |||||||
Net Income | $ | 493,244 | $ | 577,901 | $ | 441,947 | ||||
Earnings Per Share—Basic—Common Stock | ||||||||||
Income before Cumulative Effect of Accounting Change | $ | 2.07 | $ | 2.33 | $ | 1.75 | ||||
Cumulative Effect of Accounting Change, net of $.02 Tax Benefit | — | — | .03 | |||||||
Net Income | $ | 2.07 | $ | 2.33 | $ | 1.72 | ||||
Earnings Per Share—Basic—Class B Common Stock | ||||||||||
Income before Cumulative Effect of Accounting Change | $ | 1.87 | $ | 2.12 | $ | 1.58 | ||||
Cumulative Effect of Accounting Change, net of $.02 Tax Benefit | — | — | .03 | |||||||
Net Income | $ | 1.87 | $ | 2.12 | $ | 1.55 | ||||
Earnings Per Share—Diluted | ||||||||||
Income before Cumulative Effect of Accounting Change | $ | 1.99 | $ | 2.25 | $ | 1.70 | ||||
Cumulative Effect of Accounting Change, net of $.02 Tax Benefit | — | — | .03 | |||||||
Net Income | $ | 1.99 | $ | 2.25 | $ | 1.67 | ||||
Cash Dividends Paid Per Share: | ||||||||||
Common Stock | $ | .9300 | $ | .8350 | $ | .7226 | ||||
Class B Common Stock | .8400 | .7576 | .6526 |
CONSOLIDATED BALANCE SHEETS
December 31, | | 2005 | | 2004 | |||||||
---|---|---|---|---|---|---|---|---|---|---|---|
In thousands of dollars | |||||||||||
ASSETS | |||||||||||
Current Assets: | |||||||||||
Cash and cash equivalents | $ | 67,183 | $ | 54,837 | |||||||
Accounts receivable—trade | 559,289 | 408,930 | |||||||||
Inventories | 610,284 | 557,180 | |||||||||
Deferred income taxes | 78,196 | 61,756 | |||||||||
Prepaid expenses and other | 93,988 | 114,991 | |||||||||
Total current assets | 1,408,940 | 1,197,694 | |||||||||
Property, Plant and Equipment, Net | 1,659,138 | 1,682,698 | |||||||||
Goodwill | 487,338 | 463,947 | |||||||||
Other Intangibles | 142,626 | 125,233 | |||||||||
Other Assets | 597,194 | 343,212 | |||||||||
Total assets | $ | 4,295,236 | $ | 3,812,784 | |||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||||
Current Liabilities: | |||||||||||
Accounts payable | $ | 167,812 | $ | 148,686 | |||||||
Accrued liabilities | 507,843 | 469,185 | |||||||||
Accrued income taxes | 23,453 | 42,280 | |||||||||
Short-term debt | 819,059 | 343,277 | |||||||||
Current portion of long-term debt | 56 | 279,043 | |||||||||
Total current liabilities | 1,518,223 | 1,282,471 | |||||||||
Long-term Debt | 942,755 | 690,602 | |||||||||
Other Long-term Liabilities | 412,929 | 383,379 | |||||||||
Deferred Income Taxes | 400,253 | 319,230 | |||||||||
Total liabilities | 3,274,160 | 2,675,682 | |||||||||
Stockholders’ Equity: | |||||||||||
Preferred Stock, shares issued: none in 2005 and 2004 | — | — | |||||||||
Common Stock, shares issued: 299,083,266 in 2005 and 299,060,235 in 2004 | 299,083 | 299,060 | |||||||||
Class B Common Stock, shares issued: 60,818,478 in 2005 and 60,841,509 in 2004 | 60,818 | 60,841 | |||||||||
Additional paid-in capital | 252,374 | 171,413 | |||||||||
Unearned ESOP compensation | (3,193 | ) | (6,387 | ) | |||||||
Retained earnings | 3,646,179 | 3,374,170 | |||||||||
Treasury—Common Stock shares, at cost: 119,377,690 in 2005 and 113,313,827 in 2004 | (3,224,863 | ) | (2,762,304 | ) | |||||||
Accumulated other comprehensive (loss) income | (9,322 | ) | 309 | ||||||||
Total stockholders’ equity | 1,021,076 | 1,137,102 | |||||||||
Total liabilities and stockholders’ equity | $ | 4,295,236 | $ | 3,812,784 |
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, | | 2005 | | 2004 | | 2003 | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In thousands of dollars | ||||||||||||||
Cash Flows Provided from (Used by) | ||||||||||||||
Operating Activities | ||||||||||||||
Net income | $ | 493,244 | $ | 577,901 | $ | 441,947 | ||||||||
Adjustments to reconcile net income to net cash provided from operations: | ||||||||||||||
Depreciation and amortization | 218,032 | 189,665 | 180,567 | |||||||||||
Stock-based compensation expense, net of tax of $19,716, $16,399 and $11,677, respectively | 34,449 | 28,406 | 20,226 | |||||||||||
Deferred income taxes | 71,038 | (74,570 | ) | 33,500 | ||||||||||
Gain on sale of business, net of tax of $2,624 | — | — | (5,706 | ) | ||||||||||
Business realignment initiatives, net of tax of $44,975 and $9,988, respectively | 74,021 | — | 15,488 | |||||||||||
Cumulative effect of accounting change, net of tax of $4,933 | — | — | 7,368 | |||||||||||
Contributions to pension plans | (277,492 | ) | (8,020 | ) | (120,252 | ) | ||||||||
Changes in assets and liabilities, net of effects from business acquisitions and divestitures: | ||||||||||||||
Accounts receivable—trade | (149,032 | ) | 17,319 | (36,636 | ) | |||||||||
Inventories | (51,204 | ) | (40,043 | ) | 9,095 | |||||||||
Accounts payable | 16,715 | (11,266 | ) | 7,715 | ||||||||||
Other assets and liabilities | 31,991 | 108,362 | 31,157 | |||||||||||
Net Cash Provided from Operating Activities | 461,762 | 787,754 | 584,469 | |||||||||||
Cash Flows Provided from (Used by) | ||||||||||||||
Investing Activities | ||||||||||||||
Capital additions | (181,069 | ) | (181,728 | ) | (218,650 | ) | ||||||||
Capitalized software additions | (13,236 | ) | (14,158 | ) | (18,404 | ) | ||||||||
Business acquisitions | (47,074 | ) | (166,859 | ) | — | |||||||||
Proceeds from divestitures | 2,713 | — | 20,049 | |||||||||||
Net Cash (Used by) Investing Activities | (238,666 | ) | (362,745 | ) | (217,005 | ) | ||||||||
Cash Flows Provided from (Used by) | ||||||||||||||
Financing Activities | ||||||||||||||
Net change in short-term borrowings | 475,582 | 331,245 | 897 | |||||||||||
Long-term borrowings | 248,318 | — | 3,194 | |||||||||||
Repayment of long-term debt | (278,236 | ) | (883 | ) | (18,633 | ) | ||||||||
Cash dividends paid | (221,235 | ) | (205,747 | ) | (184,686 | ) | ||||||||
Exercise of stock options | 81,632 | 79,634 | 55,120 | |||||||||||
Excess tax benefits from exercise of stock options | 20,186 | 9,696 | 8,474 | |||||||||||
Repurchase of Common Stock | (536,997 | ) | (698,910 | ) | (414,780 | ) | ||||||||
Net Cash (Used by) Financing Activities | (210,750 | ) | (484,965 | ) | (550,414 | ) | ||||||||
Increase (decrease) in Cash and Cash Equivalents | 12,346 | (59,956 | ) | (182,950 | ) | |||||||||
Cash and Cash Equivalents as of January 1 | 54,837 | 114,793 | 297,743 | |||||||||||
Cash and Cash Equivalents as of December 31 | $ | 67,183 | $ | 54,837 | $ | 114,793 | ||||||||
Interest Paid | $ | 88,077 | $ | 66,151 | $ | 65,347 | ||||||||
Income Taxes Paid | 206,704 | 289,607 | 207,672 |
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
| Preferred Stock | | Common Stock | | Class B Common Stock | | Additional Paid-in Capital | | Unearned ESOP Compensation | | Retained Earnings | | Treasury Common Stock | | Accumulated Other Comprehensive Income (Loss) | | Total Stockholders’ Equity | |||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In thousands of dollars | ||||||||||||||||||||||||||||||||||||||
Balance as of January 1, 2003 | $ | — | $ | 149,528 | $ | 30,422 | $ | 105,717 | $ | (12,774 | ) | $ | 2,924,706 | $ | (1,808,227 | ) | $ | 21,071 | $ | 1,410,443 | ||||||||||||||||||
Net income | 441,947 | 441,947 | ||||||||||||||||||||||||||||||||||||
Other comprehensive (loss) | (32,156 | ) | (32,156 | ) | ||||||||||||||||||||||||||||||||||
Comprehensive income | 409,791 | |||||||||||||||||||||||||||||||||||||
Dividends: | ||||||||||||||||||||||||||||||||||||||
Common Stock, $.7226 per share | (144,985 | ) | (144,985 | ) | ||||||||||||||||||||||||||||||||||
Class B Common Stock, $.6526 per share | (39,701 | ) | (39,701 | ) | ||||||||||||||||||||||||||||||||||
Incentive plan transactions | 455 | 4,522 | 4,977 | |||||||||||||||||||||||||||||||||||
Stock-based compensation | 22,741 | 22,741 | ||||||||||||||||||||||||||||||||||||
Exercise of stock options | 1,519 | 67,788 | 69,307 | |||||||||||||||||||||||||||||||||||
Employee stock ownership trust/benefits transactions | 1,467 | 3,194 | 3,256 | 7,917 | ||||||||||||||||||||||||||||||||||
Repurchase of Common Stock | (414,780 | ) | (414,780 | ) | ||||||||||||||||||||||||||||||||||
Balance as of December 31, 2003 | — | 149,528 | 30,422 | 131,899 | (9,580 | ) | 3,181,967 | (2,147,441 | ) | (11,085 | ) | 1,325,710 | ||||||||||||||||||||||||||
Net income | 577,901 | 577,901 | ||||||||||||||||||||||||||||||||||||
Other comprehensive income | 11,394 | 11,394 | ||||||||||||||||||||||||||||||||||||
Comprehensive income | 589,295 | |||||||||||||||||||||||||||||||||||||
Dividends: | ||||||||||||||||||||||||||||||||||||||
Common Stock, $.835 per share | (159,658 | ) | (159,658 | ) | ||||||||||||||||||||||||||||||||||
Class B Common Stock, $.7576 per share | (46,089 | ) | (46,089 | ) | ||||||||||||||||||||||||||||||||||
Two-for-one stock split | 149,529 | 30,422 | (179,951 | ) | — | |||||||||||||||||||||||||||||||||
Conversion of Class B Common Stock into Common Stock | 3 | (3 | ) | — | ||||||||||||||||||||||||||||||||||
Incentive plan transactions | 36 | 1,609 | 1,645 | |||||||||||||||||||||||||||||||||||
Stock-based compensation | 14,934 | 14,934 | ||||||||||||||||||||||||||||||||||||
Exercise of stock options | 23,248 | 81,482 | 104,730 | |||||||||||||||||||||||||||||||||||
Employee stock ownership trust/benefits transactions | 1,296 | 3,193 | 956 | 5,445 | ||||||||||||||||||||||||||||||||||
Repurchase of Common Stock | (698,910 | ) | (698,910 | ) | ||||||||||||||||||||||||||||||||||
Balance as of December 31, 2004 | — | 299,060 | 60,841 | 171,413 | (6,387 | ) | 3,374,170 | (2,762,304 | ) | 309 | 1,137,102 | |||||||||||||||||||||||||||
Net income | 493,244 | 493,244 | ||||||||||||||||||||||||||||||||||||
Other comprehensive (loss) | (9,631 | ) | (9,631 | ) | ||||||||||||||||||||||||||||||||||
Comprehensive income | 483,613 | |||||||||||||||||||||||||||||||||||||
Dividends: | ||||||||||||||||||||||||||||||||||||||
Common Stock, $.93 per share | (170,147 | ) | (170,147 | ) | ||||||||||||||||||||||||||||||||||
Class B Common Stock, $.84 per share | (51,088 | ) | (51,088 | ) | ||||||||||||||||||||||||||||||||||
Conversion of Class B Common Stock into Common Stock | 23 | (23 | ) | — | ||||||||||||||||||||||||||||||||||
Incentive plan transactions | 236 | 1,161 | 1,397 | |||||||||||||||||||||||||||||||||||
Stock-based compensation | 31,117 | 31,117 | ||||||||||||||||||||||||||||||||||||
Exercise of stock options | 49,406 | 73,258 | 122,664 | |||||||||||||||||||||||||||||||||||
Employee stock ownership trust/benefits transactions | 202 | 3,194 | 19 | 3,415 | ||||||||||||||||||||||||||||||||||
Repurchase of Common Stock | (536,997 | ) | (536,997 | ) | ||||||||||||||||||||||||||||||||||
Balance as of December 31, 2005 | $ | — | $ | 299,083 | $ | 60,818 | $ | 252,374 | $ | (3,193 | ) | $ | 3,646,179 | $ | (3,224,863 | ) | $ | (9,322 | ) | $ | 1,021,076 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
December 31, | | 2004 | | 2003 | | 2002 | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In thousands of dollars | ||||||||||||||
Current deferred income taxes | $ | 15,253 | $ | 4,611 | $ | 6,405 | ||||||||
Total assets | $ | 15,253 | $ | 4,611 | $ | 6,405 | ||||||||
Accrued liabilities | $ | (2,911 | ) | $ | (2,654 | ) | $ | (1,634 | ) | |||||
Other long-term liabilities | (19,977 | ) | (10,917 | ) | (10,228 | ) | ||||||||
Deferred income taxes | (9,659 | ) | (27,662 | ) | (20,473 | ) | ||||||||
Total liabilities | (32,547 | ) | (41,233 | ) | (32,335 | ) | ||||||||
Additional paid-in capital | 142,799 | 127,865 | 105,124 | |||||||||||
Retained earnings | (94,999 | ) | (82,021 | ) | (66,384 | ) | ||||||||
Total stockholders’ equity | 47,800 | 45,844 | 38,740 | |||||||||||
Total liabilities and stockholders’ equity | $ | 15,253 | $ | 4,611 | $ | 6,405 |
for income taxes was benefited by a $61.1 million adjustment recorded in 2004 to income tax contingency reserves. The non-cash reduction of income tax expense resulted from the settlement of Federal tax audits for the 1999 and 2000 tax years, as well as the resolution of a number of state tax audit issues. Based upon the results of the audits, the income tax contingency reserves were adjusted, resulting in a reduction of income tax reserves by $73.7 million reflecting a reduction of the provision for income taxes by $61.1 million and a reduction to goodwill of $12.6 million. The income tax contingency reserve adjustments related primarily to the deductibility of certain expenses, interest on potential assessments, and acquisition and divestiture matters.
facilities. Manufacturing overhead and related expenses include salaries, wages, employee benefits, utilities, maintenance and property taxes.
rates in effect at the balance sheet date. Resulting translation adjustments are recorded as a component of other comprehensive income (loss), “Foreign Currency Translation Adjustments.”
costs of materials and services consumed in developing or obtaining internal-use software, (ii) payroll and other related costs for employees who are directly associated with and who devote time to the internal-use software project and (iii) interest costs incurred, when material, while developing internal-use software. Capitalization of such costs ceases no later than the point at which the project is substantially complete and ready for its intended purpose.
Accrued Liabilities | | Balance 10/02/05 | | Fourth Quarter Utilization | | New charges during Fourth Quarter | | Balance 12/31/05 | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In thousands of dollars | ||||||||||||||||||
VWRP | $ | 33,726 | $ | (5,650 | ) | $ | 3,807 | $ | 31,883 | |||||||||
Facility rationalization | 4,725 | (6,615 | ) | 1,890 | — | |||||||||||||
Streamline international operations | 5,390 | (890 | ) | 1,388 | 5,888 | |||||||||||||
Total | $ | 43,841 | $ | (13,155 | ) | $ | 7,085 | $ | 37,771 |
$23.4 million and an $8.3 million net gain resulting from the divestiture of certain brands (together, the “2003 business realignment initiatives”).
Cash flows from other foreign exchange forward contracts and options are classified as net cash provided from operating activities.
sales as a result of hedge ineffectiveness were approximately $.4 million and $.4 million before tax for the years ended December 31, 2004 and 2003, respectively. No gains or losses on cash flow hedging derivatives were reclassified from accumulated other comprehensive income (loss) into income as a result of the discontinuance of a hedge because it became probable that a hedged forecasted transaction would not occur. There were no components of gains or losses on cash flow hedging derivatives that were recognized in income because such components were excluded from the assessment of hedge effectiveness. As of December 31, 2005, the amount of net after-tax losses on cash flow hedging derivatives, including foreign exchange forward contracts and options, interest rate swap agreements and commodities futures contracts, expected to be reclassified into earnings in the next twelve months was approximately $3.6 million, which was primarily associated with commodities futures contracts.
7. | COMPREHENSIVE INCOME |
For the year ended December 31, 2005 | | Pre-Tax Amount | | Tax (Expense) Benefit | | After-Tax Amount | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In thousands of dollars | ||||||||||||||
Net income | $ | 493,244 | ||||||||||||
Other comprehensive income (loss): | ||||||||||||||
Foreign currency translation adjustments | $ | 17,151 | $ | — | 17,151 | |||||||||
Minimum pension liability adjustments, net of tax | (3,617 | ) | 1,386 | (2,231 | ) | |||||||||
Cash flow hedges: | ||||||||||||||
Gains (losses) on cash flow hedging derivatives | (10,255 | ) | 3,791 | (6,464 | ) | |||||||||
Reclassification adjustments | (28,435 | ) | 10,348 | (18,087 | ) | |||||||||
Total other comprehensive loss | $ | (25,156 | ) | $ | 15,525 | (9,631 | ) | |||||||
Comprehensive income | $ | 483,613 |
For the year ended December 31, 2004 | | Pre-Tax Amount | | Tax (Expense) Benefit | | After-Tax Amount | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In thousands of dollars | ||||||||||||||
Net income | $ | 577,901 | ||||||||||||
Other comprehensive income (loss): | ||||||||||||||
Foreign currency translation adjustments | $ | 21,229 | $ | — | 21,229 | |||||||||
Minimum pension liability adjustments, net of tax | 81 | (32 | ) | 49 | ||||||||||
Cash flow hedges: | ||||||||||||||
Gains (losses) on cash flow hedging derivatives | 25,571 | (9,314 | ) | 16,257 | ||||||||||
Reclassification adjustments | (41,222 | ) | 15,081 | (26,141 | ) | |||||||||
Total other comprehensive income | $ | 5,659 | $ | 5,735 | 11,394 | |||||||||
Comprehensive income | $ | 589,295 |
For the year ended December 31, 2003 | | Pre-Tax Amount | | Tax (Expense) Benefit | | After-Tax Amount | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In thousands of dollars | ||||||||||||||
Net income | $ | 441,947 | ||||||||||||
Other comprehensive income (loss): | ||||||||||||||
Foreign currency translation adjustments | $ | 40,938 | $ | — | 40,938 | |||||||||
Minimum pension liability adjustments, net of tax | (1,565 | ) | 623 | (942 | ) | |||||||||
Cash flow hedges: | ||||||||||||||
Gains (losses) on cash flow hedging derivatives | (31,971 | ) | 11,732 | (20,239 | ) | |||||||||
Reclassification adjustments | (82,012 | ) | 30,099 | (51,913 | ) | |||||||||
Total other comprehensive loss | $ | (74,610 | ) | $ | 42,454 | (32,156 | ) | |||||||
Comprehensive income | $ | 409,791 |
December 31, | | 2005 | | 2004 | ||||||
---|---|---|---|---|---|---|---|---|---|---|
In thousands of dollars | ||||||||||
Foreign currency translation adjustments | $ | 243 | $ | (16,908 | ) | |||||
Minimum pension liability adjustments | (3,360 | ) | (1,129 | ) | ||||||
Cash flow hedges | (6,205 | ) | 18,346 | |||||||
Total accumulated other comprehensive (loss) income | $ | (9,322 | ) | $ | 309 |
8. | FINANCIAL INSTRUMENTS |
weighted average fixed rate on the forward swap agreements is 5.1%. The fair value of the forward swap agreements was a liability of $4.9 million as of December 31, 2005.
For the years ended December 31, | | 2005 | | 2004 | | 2003 | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In thousands of dollars | ||||||||||||||
Long-term debt and lease obligations | $ | 66,324 | $ | 66,005 | $ | 66,283 | ||||||||
Short-term debt | 23,164 | 4,511 | 935 | |||||||||||
Capitalized interest | (3 | ) | (2,597 | ) | (1,953 | ) | ||||||||
Interest expense, gross | 89,485 | 67,919 | 65,265 | |||||||||||
Interest income | (1,500 | ) | (1,386 | ) | (1,736 | ) | ||||||||
Interest expense, net | $ | 87,985 | $ | 66,533 | $ | 63,529 |
10. | SHORT-TERM DEBT |
or lower. The Company had short-term foreign bank loans against its lines of credit of $18.0 million and $19.2 million as of December 31, 2005 and 2004, respectively.
December 31, | 2005 | | 2004 | |||
---|---|---|---|---|---|---|
In thousands of dollars | ||||||
6.7% Notes due 2005 | $ | — | $ | 201,187 | ||
6.95% Notes due 2007 | 151,176 | 152,184 | ||||
6.95% Notes due 2012 | 150,000 | 150,000 | ||||
4.85% Notes due 2015 | 250,000 | — | ||||
8.8% Debentures due 2021 | 100,000 | 100,000 | ||||
7.2% Debentures due 2027 | 250,000 | 250,000 | ||||
Obligations associated with consolidation of lease arrangements | 38,680 | 115,544 | ||||
Other obligations, net of unamortized debt discount | 2,955 | 730 | ||||
Total long-term debt | 942,811 | 969,645 | ||||
Less—current portion | 56 | 279,043 | ||||
Long-term portion | $ | 942,755 | $ | 690,602 |
For the years ended December 31, | | 2005 | | 2004 | | 2003 | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In thousands of dollars | ||||||||||||||
Current: | ||||||||||||||
Federal | $ | 184,271 | $ | 267,645 | $ | 204,602 | ||||||||
State | 12,326 | 39,835 | 21,318 | |||||||||||
Foreign | 12,047 | 4,363 | (571 | ) | ||||||||||
Current provision for income taxes | 208,644 | 311,843 | 225,349 | |||||||||||
Deferred: | ||||||||||||||
Federal | 53,265 | (52,987 | ) | 18,159 | ||||||||||
State | 18,799 | (26,731 | ) | 5,520 | ||||||||||
Foreign | (1,026 | ) | 5,148 | 9,821 | ||||||||||
Deferred income tax provision (benefit) | 71,038 | (74,570 | ) | 33,500 | ||||||||||
Total provision for income taxes | $ | 279,682 | $ | 237,273 | $ | 258,849 |
December 31, | | 2005 | | 2004 | ||||||
---|---|---|---|---|---|---|---|---|---|---|
In thousands of dollars | ||||||||||
Deferred tax assets: | ||||||||||
Post-retirement benefit obligations | $ | 111,864 | $ | 103,959 | ||||||
Accrued expenses and other reserves | 133,689 | 102,585 | ||||||||
Stock-based compensation | 38,795 | 34,016 | ||||||||
Accrued trade promotion reserves | 5,413 | 27,220 | ||||||||
Other | 15,763 | 25,118 | ||||||||
Total deferred tax assets | 305,524 | 292,898 | ||||||||
Deferred tax liabilities: | ||||||||||
Property, plant and equipment, net | 275,030 | 289,410 | ||||||||
Pension | 224,161 | 128,605 | ||||||||
Acquired intangibles | 43,479 | 11,963 | ||||||||
Inventories | 33,435 | 34,314 | ||||||||
Other | 51,476 | 86,080 | ||||||||
Total deferred tax liabilities | 627,581 | 550,372 | ||||||||
Net deferred tax liabilities | $ | 322,057 | $ | 257,474 | ||||||
Included in: | ||||||||||
Current deferred tax assets, net | $ | (78,196 | ) | $ | (61,756 | ) | ||||
Non-current deferred tax liabilities, net | 400,253 | 319,230 | ||||||||
Net deferred tax liabilities | $ | 322,057 | $ | 257,474 |
For the years ended December 31, | | 2005 | | 2004 | | 2003 | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Federal statutory income tax rate | 35.0 | % | 35.0 | % | 35.0 | % | ||||||||
Increase (reduction) resulting from: | ||||||||||||||
State income taxes, net of Federal income tax benefits | 2.6 | 2.6 | 2.6 | |||||||||||
Qualified production income deduction | (.9 | ) | — | — | ||||||||||
Settlement of prior years’ tax audits | — | (7.3 | ) | — | ||||||||||
Puerto Rico operations | (.6 | ) | (.4 | ) | (.8 | ) | ||||||||
Other, net | .1 | (.8 | ) | (.2 | ) | |||||||||
Effective income tax rate | 36.2 | % | 29.1 | % | 36.6 | % |
13. | PENSION AND OTHER POST-RETIREMENT BENEFIT PLANS |
Pension Benefits | Other Benefits | ||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
December 31, | | 2005 | | 2004 | | 2005 | | 2004 | |||||||||||
In thousands of dollars | |||||||||||||||||||
Change in benefits obligation | |||||||||||||||||||
Benefits obligation at beginning of year | $ | 972,073 | $ | 893,159 | $ | 328,799 | $ | 328,263 | |||||||||||
Service cost | 49,065 | 43,296 | 5,149 | 4,898 | |||||||||||||||
Interest cost | 55,181 | 52,551 | 18,115 | 18,335 | |||||||||||||||
Amendments | 2,275 | 3,541 | 960 | 1,479 | |||||||||||||||
Actuarial loss (gain) | 79,903 | 34,826 | 15,221 | (2,748 | ) | ||||||||||||||
Special termination benefits | 22,790 | — | 1,910 | — | |||||||||||||||
Curtailment (gain) loss | (6,319 | ) | — | 8,092 | — | ||||||||||||||
Other | 3,598 | 6,093 | 780 | 775 | |||||||||||||||
Benefits paid | (62,352 | ) | (61,393 | ) | (23,148 | ) | (22,203 | ) | |||||||||||
Benefits obligation at end of year | 1,116,214 | 972,073 | 355,878 | 328,799 | |||||||||||||||
Change in plan assets | |||||||||||||||||||
Fair value of plan assets at beginning of year | 974,045 | 927,658 | — | — | |||||||||||||||
Actual return on plan assets | 81,494 | 95,158 | — | — | |||||||||||||||
Employer contribution | 277,492 | 8,020 | 23,148 | 22,203 | |||||||||||||||
Other | 2,548 | 4,602 | — | — | |||||||||||||||
Benefits paid | (62,352 | ) | (61,393 | ) | (23,148 | ) | (22,203 | ) | |||||||||||
Fair value of plan assets at end of year | 1,273,227 | 974,045 | — | — | |||||||||||||||
Funded status | 157,013 | 1,972 | (355,878 | ) | (328,799 | ) | |||||||||||||
Unrecognized transition asset | 48 | 444 | — | — | |||||||||||||||
Unrecognized prior service cost | 37,582 | 40,379 | (2,653 | ) | (5,155 | ) | |||||||||||||
Unrecognized net actuarial loss | 314,071 | 243,859 | 84,704 | 71,716 | |||||||||||||||
Intangible asset | (1,447 | ) | — | — | — | ||||||||||||||
Accumulated other comprehensive loss | (5,395 | ) | (1,878 | ) | — | — | |||||||||||||
Prepaid (Accrued) benefits cost | $ | 501,872 | $ | 284,776 | $ | (273,827 | ) | $ | (262,238 | ) |
Pension Benefits | Other Benefits | ||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2005 | | 2004 | | 2005 | | 2004 | ||||||||||||
Discount rate | 5.4 | % | 5.7 | % | 5.4 | % | 5.7 | % | |||||||||||
Rate of increase in compensation levels | 4.8 | % | 4.9 | % | N/A | N/A |
Pension Benefits | Other Benefits | ||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
December 31, | | 2005 | | 2004 | | 2005 | | 2004 | |||||||||||
In thousands of dollars | |||||||||||||||||||
Prepaid expenses and other | $ | 14,867 | $ | 22,854 | $ | — | $ | — | |||||||||||
Other assets | 552,402 | 299,466 | — | — | |||||||||||||||
Accrued liabilities | (8,872 | ) | (48 | ) | (26,992 | ) | (30,302 | ) | |||||||||||
Other long-term liabilities | (51,130 | ) | (35,618 | ) | (246,835 | ) | (231,936 | ) | |||||||||||
Accumulated other comprehensive loss | (5,395 | ) | (1,878 | ) | — | — | |||||||||||||
Net amount recognized | $ | 501,872 | $ | 284,776 | $ | (273,827 | ) | $ | (262,238 | ) |
December 31, | | 2005 | | 2004 | ||||||
---|---|---|---|---|---|---|---|---|---|---|
In thousands of dollars | ||||||||||
Projected benefit obligation | $ | 187,911 | $ | 48,178 | ||||||
Accumulated benefit obligation | 149,840 | 41,366 | ||||||||
Fair value of plan assets | 91,140 | 167 |
Pension Benefits | Other Benefits | ||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
For the years ended December 31, | | 2005 | | 2004 | | 2003 | | 2005 | | 2004 | | 2003 | |||||||||||||||
In thousands of dollars | |||||||||||||||||||||||||||
Components of net periodic benefits cost | |||||||||||||||||||||||||||
Service cost | $ | 49,065 | $ | 43,296 | $ | 39,096 | $ | 5,149 | $ | 4,898 | $ | 3,712 | |||||||||||||||
Interest cost | 55,181 | 52,551 | 50,951 | 18,115 | 18,335 | 18,653 | |||||||||||||||||||||
Expected return on plan assets | (90,482 | ) | (76,438 | ) | (59,557 | ) | — | — | — | ||||||||||||||||||
Amortization of prior service cost | 4,380 | 4,245 | 4,486 | (1,279 | ) | (1,507 | ) | (1,654 | ) | ||||||||||||||||||
Amortization of unrecognized transition balance | 392 | 139 | (331 | ) | — | — | — | ||||||||||||||||||||
Recognized net actuarial loss | 10,611 | 9,812 | 16,377 | 2,639 | 2,554 | 3,171 | |||||||||||||||||||||
Administrative expenses | 782 | 773 | 517 | — | — | — | |||||||||||||||||||||
Net periodic benefits cost | 29,929 | 34,378 | 51,539 | 24,624 | 24,280 | 23,882 | |||||||||||||||||||||
Special termination benefits | 22,792 | — | 3,383 | 1,910 | — | 539 | |||||||||||||||||||||
Curtailment loss | 785 | — | 28 | 7,874 | — | — | |||||||||||||||||||||
Settlement loss | — | — | 7 | — | — | — | |||||||||||||||||||||
Total amount reflected in earnings | $ | 53,506 | $ | 34,378 | $ | 54,957 | $ | 34,408 | $ | 24,280 | $ | 24,421 |
Pension Benefits | Other Benefits | ||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
For the years ended December 31, | | 2005 | | 2004 | | 2003 | | 2005 | | 2004 | | 2003 | |||||||||||||||
In thousands of dollars except percents | |||||||||||||||||||||||||||
Discount rate | 5.7 | % | 6.0 | % | 6.3 | % | 5.7 | % | 6.0 | % | 6.3 | % | |||||||||||||||
Expected long-term return on plan assets | 8.5 | % | 8.5 | % | 8.5 | % | N/A | N/A | N/A | ||||||||||||||||||
Rate of compensation increase | 4.8 | % | 4.9 | % | 4.9 | % | N/A | N/A | N/A | ||||||||||||||||||
Additional information: | |||||||||||||||||||||||||||
Decrease (increase) in minimum liability included in other comprehensive (loss) income | $ | (3,617 | ) | $ | 81 | $ | (1,565 | ) | N/A | N/A | N/A |
Percentage of Plan Assets as of December 31, | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Asset Category | | Target Allocation 2006 | | 2005 | | 2004 | |||||||||
Equity securities | 40–85 | % | 74 | % | 75 | % | |||||||||
Debt securities | 15–60 | 24 | 24 | ||||||||||||
Other | 0–10 | 2 | 1 | ||||||||||||
Total | 100 | % | 100 | % |
Payments Due by Year | |||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In thousands of dollars | |||||||||||||||||||||||||||
2006 | 2007 | 2008 | 2009 | 2010 | 2011–2015 | ||||||||||||||||||||||
Pension benefits | $ | 68,221 | $82,495 | $64,813 | $62,160 | $57,512 | $432,734 | ||||||||||||||||||||
Other benefits | 31,002 | 32,048 | 30,078 | 30,923 | 31,500 | 158,411 |
| 1 Percentage Point Increase | | 1 Percentage Point (Decrease) | |||||||
---|---|---|---|---|---|---|---|---|---|---|
In thousands of dollars | ||||||||||
Effect on total service and interest cost components | $ | 1,272 | $ | (1,009 | ) | |||||
Effect on post-retirement benefit obligation | 12,726 | (10,664 | ) |
14. | EMPLOYEE STOCK OWNERSHIP TRUST |
stockholders’ equity represented deferred compensation expense to be recognized by the Company in 2006 as remaining shares are allocated to participants.
15. | CAPITAL STOCK AND NET INCOME PER SHARE |
for shares of Common Stock or Class B Stock, as applicable, at an exchange ratio of one share of Common Stock or Class B Stock for each one one-thousandth of a share of Preferred Stock.
For the years ended December 31, | | 2005 | | 2004 | | 2003 | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Shares issued | 359,901,744 | 359,901,744 | 359,901,744 | |||||||||||
Treasury shares at beginning of year | (113,313,827 | ) | (100,842,278 | ) | (91,461,470 | ) | ||||||||
Stock repurchases: | ||||||||||||||
Repurchase programs and privately negotiated transactions | (4,153,228 | ) | (13,914,089 | ) | (9,848,400 | ) | ||||||||
Stock options and benefits | (4,859,403 | ) | (1,898,411 | ) | (2,410,224 | ) | ||||||||
Stock issuances: | ||||||||||||||
Stock options and benefits | 2,948,768 | 3,340,951 | 2,877,816 | |||||||||||
Treasury shares at end of year | (119,377,690 | ) | (113,313,827 | ) | (100,842,278 | ) | ||||||||
Net shares outstanding at end of year | 240,524,054 | 246,587,917 | 259,059,466 |
For the years ended December 31, | | 2005 | | 2004 | | 2003 | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In thousands except per share amounts | ||||||||||||||
Net income | $ | 493,244 | $ | 577,901 | $ | 441,947 | ||||||||
Weighted-average shares—Basic | ||||||||||||||
Common Stock | 183,747 | 193,037 | 201,768 | |||||||||||
Class B Stock | 60,821 | 60,844 | 60,844 | |||||||||||
Total weighted-average shares—Basic | 244,568 | 253,881 | 262,612 | |||||||||||
Effect of dilutive securities: | ||||||||||||||
Employee stock options | 3,336 | 2,809 | 1,826 | |||||||||||
Performance and restricted stock units | 388 | 244 | 94 | |||||||||||
Weighted-average shares—Diluted | 248,292 | 256,934 | 264,532 | |||||||||||
Earnings Per Share—Basic | ||||||||||||||
Common Stock | $ | 2.07 | $ | 2.33 | $ | 1.72 | ||||||||
Class B Stock | $ | 1.87 | $ | 2.12 | $ | 1.55 | ||||||||
Earnings Per Share—Diluted | $ | 1.99 | $ | 2.25 | $ | 1.67 |
16. | STOCK COMPENSATION PLANS |
changed to provide for pro-rated vesting over four years for options granted subsequent to December 31, 1999. Compensation cost charged against income for stock options was $38.2 million, $23.8 million and $25.0 million for 2005, 2004 and 2003, respectively. The 2005 compensation cost included $3.9 million for the impact of the modification of stock option grants resulting in accelerated vesting of stock options relating to employees exiting the Company in 2005 under the terms of the VWRP. An additional $4.6 million was also recorded to reflect expense recognition for 2005 stock option grants over the substantive service period rather than the vesting period which had been used for prior grants. The substantive service period is the period from the grant date to the date on which an employee becomes retirement-eligible.
2005 | 2004 | 2003 | |||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Stock Options | | Shares | | Weighted- Average Exercise Price | | Shares | | Weighted- Average Exercise Price | | Shares | | Weighted- Average Exercise Price | |||||||||||||||
Outstanding at beginning of year | 14,909,536 | $ | 32.82 | 14,142,318 | $ | 28.73 | 13,929,124 | $ | 26.49 | ||||||||||||||||||
Granted | 2,051,255 | $ | 61.49 | 4,013,900 | $ | 41.25 | 2,945,850 | $ | 32.60 | ||||||||||||||||||
Exercised | (2,898,419 | ) | $ | 28.14 | (3,241,948 | ) | $ | 24.58 | (2,580,706 | ) | $ | 21.00 | |||||||||||||||
Forfeited | (337,259 | ) | $ | 43.54 | (4,734 | ) | $ | 33.81 | (151,950 | ) | $ | 29.34 | |||||||||||||||
Outstanding at end of year | 13,725,113 | $ | 37.83 | 14,909,536 | $ | 32.82 | 14,142,318 | $ | 28.73 | ||||||||||||||||||
Options exercisable at year-end | 7,001,941 | $ | 30.86 | 7,272,885 | $ | 28.03 | 7,474,162 | $ | 26.34 | ||||||||||||||||||
Weighted-average fair value of options granted during the year (per share) | $ | 16.90 | $ | 10.67 | $ | 8.87 |
Options Outstanding | Options Exercisable | ||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Range of Exercise Prices | | Number Outstanding as of 12/31/05 | | Weighted- Average Remaining Contractual Life in Years | | Weighted- Average Exercise Price | | Number Exercisable as of 12/31/05 | | Weighted- Average Exercise Price | |||||||||||||
$16.53–32.25 | 5,050,696 | 4.8 | $28.19 | 3,950,997 | $27.07 | ||||||||||||||||||
$32.31–37.76 | 4,980,787 | 6.8 | $35.55 | 2,830,673 | $34.64 | ||||||||||||||||||
$37.84–64.65 | 3,693,630 | 8.9 | $54.09 | 220,271 | $50.36 | ||||||||||||||||||
$16.53–64.65 | 13,725,113 | 6.6 | $37.83 | 7,001,941 | $30.86 |
For the years ended December 31, | | 2005 | | 2004 | | 2003 | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Units granted | 241,887 | 332,162 | 228,224 | |||||||||||
Weighted-average fair value at date of grant | $57.21 | $40.53 | $33.17 |
Performance Stock Units and Restricted Stock Units | | 2005 | | Weighted-average grant date fair value for equity awards or market value for liability awards | ||||||
---|---|---|---|---|---|---|---|---|---|---|
Outstanding at beginning of year | 1,046,499 | $47.57 | ||||||||
Granted | 241,887 | $57.21 | ||||||||
Performance assumption change | 176,725 | $44.42 | ||||||||
Vested | (222,759 | ) | $55.74 | |||||||
Forfeited | (50,985 | ) | $51.28 | |||||||
Outstanding at end of year | 1,191,367 | $47.01 |
17. | SUPPLEMENTAL BALANCE SHEET INFORMATION |
December 31, | | 2005 | | 2004 | ||||||
---|---|---|---|---|---|---|---|---|---|---|
In thousands of dollars | ||||||||||
Raw materials | $ | 202,826 | $ | 166,813 | ||||||
Goods in process | 92,923 | 70,440 | ||||||||
Finished goods | 385,798 | 384,094 | ||||||||
Inventories at FIFO | 681,547 | 621,347 | ||||||||
Adjustment to LIFO | (71,263 | ) | (64,167 | ) | ||||||
Total inventories | $ | 610,284 | $ | 557,180 |
December 31, | | 2005 | | 2004 | ||||||
---|---|---|---|---|---|---|---|---|---|---|
In thousands of dollars | ||||||||||
Land | $ | 81,672 | $ | 84,563 | ||||||
Buildings | 699,899 | 688,642 | ||||||||
Machinery and equipment | 2,676,845 | 2,595,997 | ||||||||
Property, plant and equipment, gross | 3,458,416 | 3,369,202 | ||||||||
Accumulated depreciation | (1,799,278 | ) | (1,686,504 | ) | ||||||
Property, plant and equipment, net | $ | 1,659,138 | $ | 1,682,698 |
December 31, | | 2005 | | 2004 | ||||||
---|---|---|---|---|---|---|---|---|---|---|
In thousands of dollars | ||||||||||
Unamortized intangible assets: | ||||||||||
Goodwill | $ | 487,338 | $ | 463,947 | ||||||
Trademarks | $ | 111,928 | $ | 100,335 | ||||||
Amortized intangible assets, gross: | ||||||||||
Customer-related | 27,395 | 18,567 | ||||||||
Patents | 8,317 | 8,317 | ||||||||
Total other intangible assets, gross | 147,640 | 127,219 | ||||||||
Accumulated amortization | (5,014 | ) | (1,986 | ) | ||||||
Other intangibles | $ | 142,626 | $ | 125,233 |
December 31, | | 2005 | | 2004 | ||||||
---|---|---|---|---|---|---|---|---|---|---|
In thousands of dollars | ||||||||||
Payroll, compensation and benefits | $ | 172,529 | $ | 145,123 | ||||||
Advertising and promotion | 200,842 | 218,376 | ||||||||
Other | 134,472 | 105,686 | ||||||||
Total accrued liabilities | $ | 507,843 | $ | 469,185 |
December 31, | | 2005 | | 2004 | ||||||
---|---|---|---|---|---|---|---|---|---|---|
In thousands of dollars | ||||||||||
Accrued post-retirement benefits | $ | 246,896 | $ | 231,967 | ||||||
Other | 166,033 | 151,412 | ||||||||
Total other long-term liabilities | $ | 412,929 | $ | 383,379 |
18. | SEGMENT INFORMATION |
19. | QUARTERLY DATA (Unaudited) |
Year 2005 | |||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In thousands of dollars except per share amounts | |||||||||||||||||||
Results prior to SFAS No. 123R adoption | | First | | Second | | Third | | Fourth | |||||||||||
Net sales | $ | 1,126,414 | $ | 988,447 | $ | 1,368,240 | $ | 1,352,873 | |||||||||||
Gross profit | 431,283 | 393,748 | 518,754 | 528,008 | |||||||||||||||
Net income | 118,221 | 97,361 | 119,475 | 172,847 | |||||||||||||||
Per share—Basic—Common | .49 | .41 | .50 | .73 | |||||||||||||||
Per share—Basic—Class B | .45 | .37 | .45 | .66 | |||||||||||||||
Per share—Diluted | .47 | .39 | .48 | .70 |
Impact of SFAS No. 123R | | First | | Second | | Third | | Fourth | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Net sales | N/A | N/A | N/A | N/A | |||||||||||||||
Gross profit | (453 | ) | (453 | ) | (453 | ) | N/A | ||||||||||||
Net income | (5,199 | ) | (4,138 | ) | (5,323 | ) | N/A | ||||||||||||
Per share—Basic—Common | (.02 | ) | (.02 | ) | (.02 | ) | N/A | ||||||||||||
Per share—Basic—Class B | (.02 | ) | (.02 | ) | (.02 | ) | N/A | ||||||||||||
Per share—Diluted | (.02 | ) | (.02 | ) | (.02 | ) | N/A | ||||||||||||
Results subsequent to SFAS No. 123R adoption | | First | | Second | | Third | | Fourth | |||||||||||
Net sales | $ | 1,126,414 | $ | 988,447 | $ | 1,368,240 | $ | 1,352,873 | |||||||||||
Gross profit | 430,830 | 393,295 | 518,301 | 528,008 | |||||||||||||||
Net income | 113,022 | 93,223 | 114,152 | 172,847 | |||||||||||||||
Per share—Basic—Common | .47 | .39 | .48 | .73 | |||||||||||||||
Per share—Basic—Class B | .43 | .35 | .43 | .66 | |||||||||||||||
Per share—Diluted(a) | .45 | .37 | .46 | .70 | |||||||||||||||
Year 2004 | |||||||||||||||||||
In thousands of dollars except per share amounts | |||||||||||||||||||
Results prior to SFAS No. 123R adoption | | First | | Second | | Third | | Fourth | |||||||||||
Net sales | $ | 1,013,089 | $ | 893,688 | $ | 1,254,508 | $ | 1,267,963 | |||||||||||
Gross profit | 387,457 | 360,484 | 498,100 | 503,676 | |||||||||||||||
Net income | 107,147 | 147,217 | 166,229 | 170,286 | |||||||||||||||
Per share—Basic—Common | .42 | .58 | .68 | .71 | |||||||||||||||
Per share—Basic—Class B | .38 | .53 | .62 | .64 | |||||||||||||||
Per share—Diluted | .41 | .56 | .66 | .68 | |||||||||||||||
Impact of SFAS No. 123R | | First | | Second | | Third | | Fourth | |||||||||||
Net sales | N/A | N/A | N/A | N/A | |||||||||||||||
Gross profit | N/A | N/A | (453 | ) | (453 | ) | |||||||||||||
Net income | (3,060 | ) | (3,036 | ) | (3,712 | ) | (3,170 | ) | |||||||||||
Per share—Basic—Common(a) | (.01 | ) | (.01 | ) | (.02 | ) | (.02 | ) | |||||||||||
Per share—Basic—Class B | (.01 | ) | (.01 | ) | (.02 | ) | (.01 | ) | |||||||||||
Per share—Diluted | (.01 | ) | (.01 | ) | (.02 | ) | (.01 | ) | |||||||||||
Results subsequent to SFAS No. 123R adoption | | First | | Second | | Third | | Fourth | |||||||||||
Net sales | $ | 1,013,089 | $ | 893,688 | $ | 1,254,508 | $ | 1,267,963 | |||||||||||
Gross profit | 387,457 | 360,484 | 497,647 | 503,223 | |||||||||||||||
Net income | 104,087 | 144,181 | 162,517 | 167,116 | |||||||||||||||
Per share—Basic—Common | .41 | .57 | .66 | .69 | |||||||||||||||
Per share—Basic—Class B | .37 | .52 | .60 | .63 | |||||||||||||||
Per share—Diluted(a) | .40 | .55 | .64 | .67 |
(a) | Quarterly income per share amounts do not total to the annual amounts due to the impact of changes in weighted-average shares outstanding during the year. |
Item 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
KPMG LLP, an independent registered public accounting firm, has issued an audit report on management’s assessment of the Company’s internal control over financial reporting. This report appears on page 76.
Richard H. Lenny | David J. West | ||
Chairman of the Board, President | Senior Vice President | ||
and Chief Executive Officer | Chief Financial Officer |
The Hershey Company:
February 27, 2006
Item 10. | DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT |
Name | Age | Positions Held During the Last Five Years | ||||||||
---|---|---|---|---|---|---|---|---|---|---|
Richard H. Lenny(1) | 54 | Chairman of the Board, President and Chief Executive Officer (January 2002); President and Chief Executive Officer (March 2001) | ||||||||
Marcella K. Arline | 53 | Senior Vice President, Chief People Officer (June 2004); Senior Vice President, Human Resources and Corporate Affairs (December 2002); Senior Vice President, Human Resources (June 2002); Vice President, Human Resources (June 2001); Vice President, Quality and Regulatory Compliance (October 1999) | ||||||||
Christopher J. Baldwin(2) | 43 | Senior Vice President, President U.S. Commercial Group (November 2005); Senior Vice President, Global Chief Customer Officer (October 2004) | ||||||||
John P. Bilbrey(3) | 49 | Senior Vice President, President International Commercial Group (November 2005); Senior Vice President, President Hershey International (November 2003) | ||||||||
Raymond Brace | 62 | Senior Vice President, Global Operations (April 2005); Senior Vice President, Operations (June 2004); Vice President, Operations and Technology (January 2002); Vice President, Manufacturing and Engineering (June 2001); Vice President, Operations (January 1997) | ||||||||
Thomas K. Hernquist(4) | 47 | Senior Vice President, Global Chief Growth Officer (November 2005); Senior Vice President, President U.S. Confectionery (February 2005); Senior Vice President, Chief Marketing Officer (April 2003) | ||||||||
Burton H. Snyder | 58 | Senior Vice President, General Counsel and Secretary (November 2003); General Counsel, Secretary, and Senior Vice President, International (December 2002); Senior Vice President—Public Affairs, General Counsel and Secretary (January 2002); Vice President and Assistant General Counsel (January 2001) | ||||||||
David J. West(5) | 42 | Senior Vice President, Chief Financial Officer (January 2005); Senior Vice President, Chief Customer Officer (June 2004); Senior Vice President, Sales (December 2002); Senior Vice President, Business Planning and Development (June 2002); Vice President, Business Planning and Development (May 2001) | ||||||||
George F. Davis | 57 | Vice President, Chief Information Officer (December 2000) | ||||||||
David W. Tacka | 52 | Vice President, Chief Accounting Officer (February 2004); Vice President, Corporate Controller and Chief Accounting Officer (April 2000) |
There are no family relationships among any of the above-named officers of the Company.
(1) | Mr. Lenny was elected President and Chief Executive Officer effective March 12, 2001. Prior to joining the Company he was Group Vice President, Kraft Foods, Inc. and President, Nabisco Biscuit and Snacks (January 2001). |
(2) | Mr. Baldwin was elected Senior Vice President, Global Chief Customer Officer effective October 25, 2004. Prior to joining the Company he was National Vice President, Field Sales and Logistics, Kraft Foods, Inc. (January 2004); National Vice President Sales and Logistics, Direct Store Delivery—Kraft Foods (January 2003); Vice President, Sales and Integrated Logistics, Nabisco Biscuit (January 2002); Vice President, Sales, Nabisco Biscuit and Snacks (January 2001). |
(3) | Mr. Bilbrey was elected Senior Vice President, President Hershey International effective November 5, 2003. Prior to joining the Company he was Executive Vice President, Sales—Mission Foods (May 2003); President and Chief Executive Officer—Danone Waters of North America, Inc., a division of Groupe Danone, Paris (June 2001); President—Danone Waters of North America, Inc., a division of Groupe Danone, Paris (January 2001). |
(4) | Mr. Hernquist was elected Senior Vice President, Chief Marketing Officer effective April 28, 2003. Prior to joining the Company he was Senior Vice President, Marketing—Jim Beam Brands, Fortune Brands (January 2002); President and Chief Executive Officer—Sierra On-line, Vivendi Universal (April 2001). |
(5) | Mr. West was elected Vice President, Business Planning and Development effective May 30, 2001. Prior to joining the Company he was Senior Vice President Finance, Kraft Foods—Nabisco Biscuit, Confectionery and Snacks (January 2001). |
Item 11. | EXECUTIVE COMPENSATION |
Item 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
(a) | Information concerning ownership of the Company’s voting securities by certain beneficial owners, individual nominees for director, the named executive officers, including the Chief Executive Officer of the Company for 2005 and executive officers as a group, is set forth in the section entitled “Voting Securities” in the Proxy Statement, which information is incorporated herein by reference. |
(b) | The following table provides information about the Company’s Common Stock that may be issued under equity compensation plans as of December 31, 2005: |
(a) | (b) | (c) | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Plan Category | | Number of securities to be issued upon exercise of outstanding options, warrants and rights | | Weighted-average exercise price of outstanding options, warrants and rights | | Number of securities remaining available for future issuance under equity compensation plans excluding securities reflected in column (a) | ||||||||
Equity compensation plans approved by security holders (1) | 12,010,063 | $ | 37.46 | 6,793,875 | ||||||||||
Equity compensation plans not approved by security holders (2) | 1,715,050 | $ | 40.44 | 927,113 | ||||||||||
Total | 13,725,113 | $ | 37.83 | 7,720,988 |
(1) | Column (a) includes stock options granted under the stockholder-approved Key Employee Incentive Plan (“Incentive Plan”). The securities available for future issuance in column (c) are not allocated to any specific type of award under the Incentive Plan, but are available generally for future awards of stock options, performance stock units (“PSUs”), restricted stock units (“RSUs”) and dividend equivalent units on RSUs granted under the Incentive Plan. |
(2) | Column (a) includes 1,478,650 stock options granted under the The Hershey Company Broad Based Stock Option Plan. In July 2004, the Company announced a worldwide stock option grant under the Broad Based Stock Option Plan, which provided over 13,000 eligible employees with a grant of 100 non-qualified stock options. The stock options were granted at a price of $46.44 per share which equates to 100% of the fair market value of the Company’s Common Stock on the date of grant (determined as the closing price on the New York Stock Exchange on the trading day immediately preceding the date the stock options were granted), have a term of ten years and will vest on July 19, 2009. In 1996, the Company’s Board of Directors approved a worldwide stock option grant, called HSY Growth, under the Broad Based Stock Option Plan. HSY Growth provided all eligible employees with a one-time grant of 200 non-qualified stock options that were granted outside of the Incentive Plan under a separate registration statement. Under HSY Growth over 2,471,400 stock options were granted on January 7, 1997 with an exercise price of $22.25, which equates to 100% of the fair market value of the Company’s Common Stock on the date of grant (determined as the closing price on the New York Stock Exchange on the trading day immediately preceding the date the stock options were granted). The stock options vested at the end of five years and had a maximum term of ten years from the date of grant. Column (c) includes 772,800 stock options under the Broad Based Stock Option Plan remaining available for future issuance. |
Column (a) also includes 236,400 stock options granted to Mr. Lenny outside of the Incentive Plan under a separate registration statement. All of the options available for issuance under the registration statement have been granted. The stock options were granted on March 12, 2001 with an exercise price of $32.33, which equates to 100% of the fair market value of the Company’s Common Stock on the date of grant (determined as the closing price on the New York Stock Exchange on the trading day immediately preceding the date the stock options were granted). The stock options were subject to a four-year step vesting requirement of 25% per year and have a ten-year term. |
Column (c) also includes 154,313 shares remaining available for future issuance under the Directors’ Compensation Plan. The Directors’ Compensation Plan is designed to attract and retain qualified non-employee directors and to align the interests of non-employee directors with those of the stockholders by paying a portion of their compensation in units representing shares of Common Stock. Directors who are employees of the Company receive no remuneration for their services as directors. RSUs are granted quarterly to each director on the first day of January, April, July and October on the basis of the number of shares of Common Stock, valued at the average closing price on the New York Stock Exchange of the Common Stock on the last three trading days preceding the grant, equal to $20,000. While the value of the annual |
RSU grant is targeted at $80,000, the actual value of the grant may be higher or lower depending upon the performance of the Common Stock following the grant dates. Beginning January 1, 2006, the target for the annual RSU grant was increased to $100,000, with the quarterly grant equal to a value of $25,000. A director’s RSUs will vest and be distributed upon his or her retirement from the Board. Directors may elect to receive all or a portion of their retainer in cash or Common Stock, although committee chair fees are paid only in cash. A director may defer receipt of the retainer and committee chair fees until his or her retirement from the Board. |
Item 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS |
Item 14. | PRINCIPAL ACCOUNTANT FEES AND SERVICES |
Item 15. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES |
Item 15(a)(1): | Financial Statements |
Item 15(a)(3): | Exhibits |
(3) | Articles of Incorporation and By-laws |
The Company’s Restated Certificate of Incorporation, as amended, is incorporated by reference from Exhibit 3 to the Company’s Quarterly Report on Form 10-Q for the quarter ended April 3, 2005. The By-laws, as amended and restated as of August 16, 2005, are incorporated by reference from Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended October 2, 2005. |
(4) | Instruments defining the rights of security holders, including indentures |
a. | Stockholder Protection Rights Agreement between the Company and Mellon Investor Services LLC, as Rights Agent, dated December 14, 2000, is incorporated by reference from Exhibit 4.1 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2000. |
b. | The Company has issued certain long-term debt instruments, no one class of which creates indebtedness exceeding 10% of the total assets of the Company and its subsidiaries on a consolidated basis. These classes consist of the following: |
1) | 6.95% Notes due 2007 |
2) | 6.95% Notes due 2012 |
3) | 4.85% Notes due 2015 |
4) | 8.8% Debentures due 2021 |
5) | 7.2% Debentures due 2027 |
6) | Obligations Associated with Consolidation of Lease Arrangements |
7) | Other Obligations |
a. | Kit Kat and Rolo License Agreement (the “License Agreement”) between the Company and Rowntree Mackintosh Confectionery Limited is incorporated by reference from Exhibit 10(a) to the Company’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 Company’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 Company’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 the Company and Cadbury Schweppes Inc. (now Cadbury Beverages Delaware, Inc.) dated August 25, 1988, is incorporated by reference from Exhibit 2(a) to the Company’s Current Report on Form 8-K dated September 8, 1988. This agreement was assigned by the Company to its wholly-owned subsidiary, Hershey Chocolate & Confectionery Corporation. |
c. | Cadbury Trademark & Technology License Agreement between the Company and Cadbury Limited dated August 25, 1988, is incorporated by reference from Exhibit 2(a) to the Company’s Current Report on Form 8-K dated September 8, 1988. This agreement was assigned by the Company to its wholly-owned subsidiary, Hershey Chocolate & Confectionery Corporation. |
d. | Trademark and Technology License Agreement between Huhtamaki and the Company dated December 30, 1996, is incorporated by reference from Exhibit 10 to the Company’s Current Report on Form 8-K dated February 26, 1997. This agreement was assigned by the Company to its wholly-owned subsidiary, Hershey Chocolate & Confectionery Corporation. The agreement was amended and restated in 1999 and the Amended and Restated Trademark and Technology License Agreement is incorporated by reference from Exhibit 10.2 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 1999. |
e. | Stock Purchase Agreement between Hershey Trust Company, as Trustee of the Milton Hershey School Trust, and the Company, dated July 27, 2004, is incorporated by reference from Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended October 3, 2004. |
f. | Five Year Credit Agreement dated as of November 12, 2004 among the Company and the banks, financial institutions and other institutional lenders listed on the respective signature pages thereof (“Lenders”), Citibank, N.A., as administrative agent for the Lenders (as defined therein), Bank of America, N.A., as syndication agent, UBS Loan Finance LLC, as documentation agent, and Citigroup Global Markets, Inc. and Banc of America Securities LLC, as joint lead arrangers and joint book managers is incorporated by reference from Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed November 16, 2004. |
g. | Credit Agreement dated as of September 23, 2005 among the Company and the banks, financial institutions and other institutional lenders listed on the respective signature pages thereof (“Lenders”), Citibank, N.A., as administrative agent for the Lenders (as defined therein), Bank of America, N.A., as Syndication Agent, UBS Loan Finance LLC, as Documentation Agent, and Citigroup Global Markets Inc. and Banc of America Securities LLC, as Joint Lead Arrangers and Joint Book Managers |
is incorporated by reference from Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed September 28, 2005. |
h. | Agreement dated December 12, 2005 between the Company and Hershey Trust Company, as Trustee for the benefit of Milton Hershey School, is incorporated by reference from Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed December 12, 2005. |
i. | The Company’s Amended and Restated Key Employee Incentive Plan is incorporated by reference from Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 29, 2002. |
j. | Terms and Conditions of Nonqualified Stock Option Grants under the Key Employee Incentive Plan is incorporated by reference from Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed February 18, 2005. |
k. | The Long-Term Incentive Program Participation Agreement is incorporated by reference from Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed February 18, 2005. |
l. | The Company’s Amended and Restated Deferred Compensation Plan is incorporated by reference from Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 29, 2002. |
m. | The Company’s Amended and Restated Supplemental Executive Retirement Plan is incorporated by reference from Exhibit 10.2 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2003. |
n. | First Amendment to the Hershey Foods Corporation Amended and Restated (2003) Supplemental Executive Retirement Plan is incorporated by reference from Exhibit 10.5 to the Company’s Current Report on Form 8-K, filed July 21, 2005. |
o. | The Company’s Amended and Restated Directors’ Compensation Plan is incorporated by reference from Exhibit 10.2 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2002. |
p. | The Company’s Executive Benefits Protection Plan (Group 3A), as amended, covering certain of its executive officers, is incorporated by reference from Exhibit 10 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 29, 2003. |
q. | The Executive Employment Agreement between the Company and Richard H. Lenny, dated March 12, 2001, is incorporated by reference from Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended April 1, 2001. |
r. | The Retirement Agreement and General Release between the Company and Frank Cerminara, dated October 21, 2004, is incorporated by reference from Exhibit 10.1 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2004. |
s. | The Company’s 2005 Early Retirement Plan for E-Grade Employees is incorporated by reference from Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed July 21, 2005. |
t. | The Company’s 2005 Early Retirement Plan for E-Grade Employees Separation Agreement and General Release is incorporated by reference from Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed July 21, 2005. |
u. | The Company’s 2005 Enhanced Mutual Separation Plan for E-Grade Employees is incorporated by reference from Exhibit 10.3 to the Company’s Current Report on Form 8-K, filed July 21, 2005. |
v. | The Company’s 2005 Enhanced Mutual Separation Plan for E-Grade Employees Separation Agreement and General Release is incorporated by reference from Exhibit 10.4 to the Company’s Current Report on Form 8-K, filed July 21, 2005. |
w. | A summary of certain compensation grants and awards made in February 2005 by the Compensation and Executive Organization Committee or the independent directors of the Company’s Board of Directors is incorporated herein by reference from Exhibit 10.2 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2004. |
x. | A summary of changes to non-employee director compensation for 2006, previously disclosed in the Company’s Current Report on Form 8-K, filed December 7, 2005, is attached hereto and filed as Exhibit 10.1. |
y. | A summary of certain compensation matters previously contained in the Company’s Current Report on Form 8-K filed February 22, 2006, is attached hereto and filed as Exhibit 10.2. |
z. | The Company’s Broad Based Stock Option Plan, as amended, is incorporated by reference from Exhibit 10.4 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2002. |
(12) | Computation of ratio of earnings to fixed charges statement |
A computation of ratio of earnings to fixed charges for the fiscal years ended December 31, 2005, 2004, 2003, 2002 and 2001 is attached hereto and filed as Exhibit 12. |
(21) | Subsidiaries of the Registrant |
A list setting forth subsidiaries of the Company is attached hereto and filed as Exhibit 21. |
(23) | Independent Auditors’ Consent |
The consent dated February 28, 2006 to the incorporation of reports of the Company’s Independent Auditors is attached hereto and filed as Exhibit 23. |
(31.1) | Certification of Richard H. Lenny, Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, is attached hereto and filed as Exhibit 31.1. |
(31.2) | Certification of David J. West, Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, is attached hereto and filed as Exhibit 31.2. |
(32)* | 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 is attached hereto and furnished as Exhibit 32. |
*Pursuant to Securities and Exchange Commission Release No. 33-8212, this certification will be treated as “accompanying” this Annual Report on Form 10-K 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.
THE HERSHEY COMPANY (Registrant) | ||||||
By:/s/ DAVID J. WEST David J. West Senior Vice President, Chief Financial Officer |
Signature | Title | Date | ||||||||
---|---|---|---|---|---|---|---|---|---|---|
/s/ RICHARD H. LENNY | Chief Executive Officer and Director | February 28, 2006 | ||||||||
(Richard H. Lenny) | ||||||||||
/s/ DAVID J. WEST | Chief Financial Officer | February 28, 2006 | ||||||||
(David J. West) | ||||||||||
/s/ DAVID W. TACKA | Chief Accounting Officer | February 28, 2006 | ||||||||
(David W. Tacka) | ||||||||||
/s/ JON A. BOSCIA | Director | February 28, 2006 | ||||||||
(Jon A. Boscia) | ||||||||||
/s/ ROBERT H. CAMPBELL | Director | February 28, 2006 | ||||||||
(Robert H. Campbell) | ||||||||||
/s/ ROBERT F. CAVANAUGH | Director | February 28, 2006 | ||||||||
(Robert F. Cavanaugh) | ||||||||||
/s/ GARY P. COUGHLAN | Director | February 28, 2006 | ||||||||
(Gary P. Coughlan) | ||||||||||
/s/ HARRIET EDELMAN | Director | February 28, 2006 | ||||||||
(Harriet Edelman) | ||||||||||
/s/ BONNIE G. HILL | Director | February 28, 2006 | ||||||||
(Bonnie G. Hill) | ||||||||||
/s/ ALFRED F. KELLY, JR. | Director | February 28, 2006 | ||||||||
(Alfred F. Kelly, Jr.) | ||||||||||
/s/ MACKEY J. MCDONALD | Director | February 28, 2006 | ||||||||
(Mackey J. McDonald) | ||||||||||
/s/ MARIE J. TOULANTIS | Director | February 28, 2006 | ||||||||
(Marie J. Toulantis) |
The Hershey Company:
February 27, 2006
SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended December 31, 2005, 2004 and 2003
Additions | |||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Description | | Balance at Beginning of Period | | Charged to Costs and Expenses | | Charged to Other Accounts(a) | | Deductions from Reserves | | Balance at End of Period | |||||||||||||
In thousands of dollars | |||||||||||||||||||||||
Year Ended December 31, 2005: Reserves deducted in the consolidated balance sheet from the assets to which they apply | |||||||||||||||||||||||
Accounts Receivable—Trade | $ | 17,581 | $ | 13,342 | $ | 676 | $ | (12,166 | ) | $ | 19,433 | ||||||||||||
Year Ended December 31, 2004: Reserves deducted in the consolidated balance sheet from the assets to which they apply | |||||||||||||||||||||||
Accounts Receivable—Trade | $ | 21,099 | $ | 1,844 | $ | 2,930 | $ | (8,292 | ) | $ | 17,581 | ||||||||||||
Year Ended December 31, 2003: Reserves deducted in the consolidated balance sheet from the assets to which they apply | |||||||||||||||||||||||
Accounts Receivable—Trade | $ | 16,524 | $ | 13,119 | $ | 3,599 | $ | (12,143 | ) | $ | 21,099 |
(a) | Includes recoveries of amounts previously written off and amounts related to acquired businesses. |
1. | I have reviewed this Annual Report on Form 10-K of The Hershey Company; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 15(f) and 15d-15(f)) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors: |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Richard H. Lenny |
Chief Executive Officer |
February 28, 2006 |
1. | I have reviewed this Annual Report on Form 10-K of The Hershey Company; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 15(f) and 15d-15(f)) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors: |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
David J. West |
Chief Financial Officer |
February 28, 2006 |