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UNITED
STATES
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SECURITIES
AND EXCHANGE COMMISSION
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Washington,
D.C. 20549
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FORM
8-K
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CURRENT
REPORT
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Pursuant
to Section 13 or 15(d) of the
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Securities
Exchange Act of 1934
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January
25,
2006
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Date
of Report (Date of earliest event
reported)
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The
Hershey
Company
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(Exact
name of registrant as specified in its
charter)
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Delaware
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(State
or other jurisdiction of
incorporation)
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1-183
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23-0691590
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(Commission
File Number)
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(IRS
Employer Identification No.)
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100
Crystal A Drive, Hershey, Pennsylvania
17033
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(Address
of Principal Executive Offices) (Zip
Code)
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Registrant's
telephone number, including area code: (717)
534-6799
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Check
the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under
any
of the following provisions:
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[
]
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Written
communications pursuant to Rule 425 under the Securities Act (17
CFR
230.425)
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[
]
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Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
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[
]
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Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17
CFR
240.14d-2(b))
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[
]
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Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17
CFR
240.13e-4(c))
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Page
1 of 3 Pages
Exhibit
Index - Page 3
INFORMATION
TO BE INCLUDED IN REPORT
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Item
2.02
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Results
of Operations and Financial
Condition
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On
January 25, 2006, The Hershey Company (“the Company”) announced sales and
earnings for the fourth quarter and full year ended December 31, 2005. A copy
of
the Company’s press release is attached hereto as Exhibit 99.1 and incorporated
herein by reference.
The
information in this Current Report, including the Exhibit, shall not be deemed
“filed” for the purposes of Section 18 of the Securities Exchange Act of 1934,
as amended (the “Exchange Act”), or otherwise subject to the liabilities under
that Section, and shall not be incorporated by reference into any registration
statement or other document filed under the Securities Act of 1933, as amended,
or the Exchange Act, except as shall be expressly set forth by specific
reference in such filing.
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Item
9.01
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Financial
Statements and Exhibits
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(c)
Exhibits
99.1
Press
Release dated January 25, 2006
SIGNATURE
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant
has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
Date:
January 25, 2006
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THE
HERSHEY COMPANY
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By:
/s/
David J. West
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David
J. West
Senior
Vice President, Chief Financial
Officer
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Page
2 of
3 Pages
Exhibit
Index - Page 3
EXHIBIT
INDEX
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Exhibit
No.
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Description
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99.1
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The
Hershey Company Press Release dated January 25, 2006
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Page
3 of
3 Pages
Exhibit
Index - Page 3
Exhibit
99.1
HERSHEY
ANNOUNCES RECORD FOURTH QUARTER
AND
FULL-YEAR RESULTS FROM OPERATIONS;
CONFIRMS
EXPECTATIONS FOR 2006
HERSHEY,
Pa., January 25, 2006 —
The Hershey Company (NYSE:HSY) today announced record sales and earnings
from
operations for the fourth quarter ended December 31, 2005. Consolidated net
sales were $1,352,873,000 compared with $1,267,963,000 for the fourth quarter
of
2004, an increase of 6.7 percent. Net income for the fourth quarter of 2005
was
$172,847,000, or $.70 per share-diluted, compared with $167,116,000, or $.67
per
share-diluted, for the comparable period of 2004.
These
results, prepared in accordance with generally accepted accounting principles
(“GAAP”), include total pre-tax charges of $17.6 million, or $.04 per
share-diluted, associated with the previously announced business realignment
initiatives to advance the Company’s
value-enhancing strategy. Net income from operations, which excludes the
business realignment charges for the fourth quarter of 2005, was $181,060,000,
or $.74 per share-diluted, compared with $167,116,000, or $.67 per share-diluted
for 2004, an increase of 10.4 percent.
The
results also reflect the expensing of employee stock options and other
share-based compensation in accordance with Financial Accounting Standards
Board
Statement of Financial Accounting Standards No. 123 (Revised 2004)
Share-Based Payment
(“SFAS No. 123R”). Excluding the impact of SFAS No. 123R from both periods, net
income from operations for the fourth quarter of 2005, was $185,676,000,
or $.76
per share-diluted, compared with $170,286,000, or $.68 per share-diluted
in
2004, an increase in earnings per share-diluted of 11.8 percent.
The
Company adopted SFAS No. 123R under the modified retrospective method. Under
this method, results for periods prior to 2005 have been adjusted to reflect
expensing of share-based compensation in accordance with SFAS No. 123R and
the
full-year results for 2005 are reported as though stock options and other
share-based compensation had been expensed beginning January 1, 2005. The
additional expense recorded in the fourth quarter of 2005 totaled $7.0 million
after tax, or $.03 per share-diluted, of which $2.4 million or $.01 per
share-diluted is included in the business realignment charge. The additional
expense recorded in the fourth quarter of 2004 was $3.2 million after tax,
or
$.01 per share-diluted.
Full-Year
Results
For
the full year 2005, consolidated net sales were $4,835,974,000 compared with
$4,429,248,000, an increase of 9.2 percent. Net income for 2005 was
$493,244,000, or $1.99 per share-diluted, compared with $577,901,000, or
$2.25
per share-diluted, for 2004.
Net
income for 2005 includes total pre-tax charges of $119.0 million, or $.29
per
share-diluted, related to the business realignment initiatives mentioned
above.
Net income for 2004 includes the benefit of a $61.1 million, or $.24 per
share-diluted, non-cash reduction of income tax expense resulting from the
second quarter adjustment to tax contingency reserves following the completion
of prior years’ tax audits. Net income from operations, which excludes these
items, for the full-year 2005 was $567,265,000, or $2.28 per share-diluted,
compared with $516,820,000, or $2.01 per share-diluted, an increase of 13.4
percent.
Both
years also reflect the impact of the adoption of SFAS No. 123R. The additional
expense for the full year recorded as a result of SFAS No. 123R totaled $21.7
million after tax, or $.09 per share-diluted in 2005, of which $2.4 million
or
$.01 per share-diluted is included in the business realignment charge. The
additional expense recorded in 2004 was $13.0 million after tax, or $.05
per
share-diluted. Excluding this impact, net income from operations in 2005
was
$586,541,000, or $2.36 per share-diluted, compared with $529,798,000, or
$2.06
per share-diluted in 2004, an increase of 14.6 percent.
Fourth-Quarter
Performance
“Fourth-quarter
results were solid with balanced performance in sales, operating margin,
and
profitability,” said Richard H. Lenny, Chairman, President and Chief Executive
Officer. “Sales growth for the quarter of 6.7 percent was driven by organic
sales growth of nearly four percent from new products and strong seasonal
shipments. Business acquisitions accounted for the additional growth. Hershey’s
marketplace performance strengthened during the quarter as our takeaway within
the U.S. confectionery category increased by seven percent, resulting in a
1.4 point gain in market share.
“EBIT
margin from operations expanded as productivity programs more than offset
higher
costs. Sales growth and margin improvement, excluding the share-based
compensation expense, delivered diluted earnings per share from operations
of
$.76, an increase of 11.8 percent versus 2004.”
Full-Year
Performance
In
commenting on the full year, Lenny said, “2005 was a very strong year for
Hershey. We delivered record sales growth, expanded our category leadership,
and
achieved record profitability and returns from operations. Sales growth for
the
year of nine percent included organic sales growth of six percent, with the
remainder from business acquisitions. The organic sales growth was well-balanced
between benefit-driven innovation, price realization, and solid seasonal
performance.
“Our
ability to deliver a superior value proposition to both consumers and customers
is evident
in Hershey’s marketplace performance. In both the U.S. confectionery market and
the broader U.S. snack market, Hershey was the fastest growing company in
terms
of market share gains.
“The
combination of strong sales growth and improved operating margin resulted
in
diluted earnings per share from operations of $2.36, an increase of 14.6
percent
versus 2004, excluding the impact of SFAS No. 123R. This marks the fifth
consecutive year of double-digit increases in earnings per share-diluted
from
operations.
“As
we enter 2006, Hershey’s value-enhancing strategy remains relevant and
sustainable. Product news across the portfolio including limited editions,
new
platforms, and benefit upgrades to existing brands will be the key driver
of our
sales growth. At retail, we intend to further leverage Hershey’s leadership
position in all major classes of trade and in the very important single-serve
packaging format.
“While
input costs will be broadly higher in 2006, the combination of net price
realization and productivity initiatives across the business system is expected
to yield an improvement in operating margins. Therefore, for 2006, we expect
net
sales to increase at a rate somewhat above our 3-4 percent long-term goal,
and
expect diluted earnings per share from operations, which excludes business
realignment charges, to increase at a rate slightly above our 9-11 percent
long-term goal,” Lenny concluded.
Based
on current estimates, the cost to implement the business realignment program
will result
in total pre-tax charges of approximately $140 million to $150 million, or
$.35
to $.38 per share-diluted on an after-tax basis. Total pre-tax charges of
$119.0
million, or $.29 per share-diluted, were recorded in the second half of 2005,
with the remainder to be substantially recorded in the first half of 2006.
Note: In
this sales and earnings release, Hershey has provided income measures excluding
certain items described above, in addition to net income determined in
accordance with GAAP. These non-GAAP financial measures, as shown in the
attached pro forma income statements,
are used in evaluating results of operations for internal purposes. These
non-GAAP measures are not intended to replace the presentation of financial
results in accordance with GAAP. Rather, the Company believes exclusion of
such
items provides additional information to investors to facilitate the comparison
of past and present operations.
The
release also references income measures excluding the impact of SFAS No.
123R.
These measures provide information to investors which is consistent with
the
manner in which the Company evaluated its performance during 2005. The Company
believes that providing these non-GAAP measures in the period of the adoption
of
this new accounting standard provides additional information to investors
to
facilitate the comparison of past and present operations.
Live
Web Cast
As
previously announced, the Company will hold a conference call with analysts
today at 8:30
a.m. Eastern Time. The conference call will be web cast live via Hershey’s
corporate Website www.hersheys.com.
Please go to the Investor Relations Section of the Website for further
details.
Safe
Harbor Statement
This
release contains statements which are forward-looking. These statements are
made
based upon current expectations which are subject to risk and uncertainty.
Actual results may differ materially from those contained in the forward-looking
statements. Factors which could cause results to differ materially include,
but
are not limited to: the Company’s ability to implement and generate expected
ongoing annual savings from the program to advance its value-enhancing strategy;
changes in the Company’s business environment, including actions of competitors
and changes in consumer preferences; customer and consumer response to selling
price increases; changes in governmental laws and regulations, including
taxes;
market demand for new and existing products; changes in raw material and
other
costs; pension cost factors such as actuarial assumptions, market
performance, and employee retirement decisions; changes in the value of the
Company’s Common Stock; the Company’s ability to implement improvements to and
reduce costs associated with its supply chain; and such other matters as
discussed in the Company’s Annual Report on Form 10-K for 2004.
#
# #
Media
Contact: Stephanie L. Moritz (717)
534-7641
Financial
Contact: James A. Edris
(717) 534-7556
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Summary
of Consolidated Statements of Income
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|||||||||||||
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for
the periods ended December 31, 2005 and December 31,
2004
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|||||||||||||
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(in
thousands except per share amounts)
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|||||||||||||
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Fourth
Quarter
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Twelve
Months
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||||||||||||
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2005
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2004
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2005
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2004
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||||||||||
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Net
Sales
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$
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1,352,873
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$
|
1,267,963
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$
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4,835,974
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$
|
4,429,248
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|||||
|
Costs
and Expenses:
|
|||||||||||||
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Cost
of Sales
|
824,865
|
764,740
|
2,965,540
|
2,680,437
|
|||||||||
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Selling,
Marketing and Administrative
|
225,002
|
221,706
|
912,986
|
867,104
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|||||||||
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Business
Realignment Charge
|
11,694
|
---
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96,537
|
---
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|||||||||
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Total
Costs and Expenses
|
1,061,561
|
986,446
|
3,975,063
|
3,547,541
|
|||||||||
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Income
Before Interest and Income Taxes (EBIT)
|
291,312
|
281,517
|
860,911
|
881,707
|
|||||||||
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Interest
Expense, net
|
24,255
|
17,939
|
87,985
|
66,533
|
|||||||||
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Income
Before Income Taxes
|
267,057
|
263,578
|
772,926
|
815,174
|
|||||||||
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Provision
for Income Taxes
|
94,210
|
96,462
|
279,682
|
237,273
|
|||||||||
|
Net
Income
|
$
|
172,847
|
$
|
167,116
|
$
|
493,244
|
$
|
577,901
|
|||||
|
Net
Income Per Share - Basic - Common
|
$
|
0.73
|
$
|
0.69
|
$
|
2.07
|
$
|
2.33
|
|||||
|
-
Basic - Class B
|
$
|
0.66
|
$
|
0.63
|
$
|
1.87
|
$
|
2.12
|
|||||
|
-
Diluted
|
$
|
0.70
|
$
|
0.67
|
$
|
1.99
|
$
|
2.25
|
|||||
|
Shares
Outstanding - Basic - Common
|
180,991
|
186,032
|
183,747
|
193,037
|
|||||||||
|
-
Basic - Class B
|
60,818
|
60,842
|
60,821
|
60,844
|
|||||||||
|
-
Diluted
|
245,417
|
250,582
|
248,292
|
256,934
|
|||||||||
|
Key
Margins:
|
|||||||||||||
|
Gross
Margin
|
39.0
|
%
|
39.7
|
%
|
38.7
|
%
|
39.5
|
%
|
|||||
|
EBIT
Margin
|
21.5
|
%
|
22.2
|
%
|
17.8
|
%
|
19.9
|
%
|
|||||
| Net Margin |
12.8
|
%
|
13.2
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%
|
10.2
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%
|
13.0
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%
|
|||||
|
Note:
The results reported for 2005 and 2004 reflect the adoption of SFAS
No.
123R.
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|||||||||||||
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The
Hershey Company
|
|||||||||||||||||||||
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Pro
Forma Summary of Consolidated Statements of
Income
|
|||||||||||||||||||||
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for
the periods ended December 31, 2005 and December 31,
2004
|
|||||||||||||||||||||
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(in
thousands except per share
amounts)
|
|
Fourth
Quarter
|
Twelve
Months
|
|||||||||||||||||||||
|
2005
|
2004
|
2005
|
2004
|
|||||||||||||||||||
|
Net
Sales
|
$
|
1,352,873
|
$
|
1,267,963
|
$
|
4,835,974
|
$
|
4,429,248
|
||||||||||||||
|
Costs
and Expenses:
|
||||||||||||||||||||||
|
Cost
of Sales
|
818,927
|
(a) |
|
|
764,740
|
2,943,081
|
(a) |
|
|
2,680,437
|
||||||||||||
|
Selling,
Marketing and Administrative
|
225,002
|
|
221,706
|
912,986
|
867,104
|
|||||||||||||||||
|
Business
Realignment Charge
|
---
|
(b) |
|
|
---
|
---
|
(b) |
|
|
---
|
||||||||||||
|
Total
Costs and Expenses
|
1,043,929
|
986,446
|
3,856,067
|
3,547,541
|
||||||||||||||||||
|
Income
Before Interest and Income Taxes (EBIT)
|
308,944
|
281,517
|
979,907
|
881,707
|
||||||||||||||||||
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Interest
Expense, net
|
24,255
|
17,939
|
87,985
|
66,533
|
||||||||||||||||||
|
Income
Before Income Taxes
|
284,689
|
263,578
|
891,922
|
815,174
|
||||||||||||||||||
|
Provision
for Income Taxes
|
103,629
|
96,462
|
324,657
|
298,354
|
(c) |
|
|
|||||||||||||||
|
Net
Income
|
$
|
181,060
|
$
|
167,116
|
$
|
567,265
|
$
|
516,820
|
||||||||||||||
|
Net
Income Per Share - Basic - Common
|
$
|
0.76
|
$
|
0.69
|
$
|
2.38
|
$
|
2.08
|
||||||||||||||
|
-
Basic - Class B
|
$
|
0.69
|
$
|
0.63
|
$
|
2.15
|
$
|
1.89
|
||||||||||||||
|
-
Diluted
|
$
|
0.74
|
$
|
0.67
|
$
|
2.28
|
$
|
2.01
|
||||||||||||||
|
Shares
Outstanding - Basic - Common
|
180,991
|
186,032
|
183,747
|
193,037
|
||||||||||||||||||
|
-
Basic - Class B
|
60,818
|
60,842
|
60,821
|
60,844
|
||||||||||||||||||
|
-
Diluted
|
245,417
|
250,582
|
248,292
|
256,934
|
||||||||||||||||||
|
Key
Margins:
|
||||||||||||||||||||||
|
Adjusted
Gross Margin
|
39.5
|
%
|
39.7
|
%
|
39.1
|
%
|
39.5
|
%
|
||||||||||||||
|
Adjusted
EBIT
Margin
|
22.8
|
%
|
22.2
|
%
|
20.3
|
%
|
19.9
|
%
|
||||||||||||||
| Adjusted Net Margin |
13.4
|
%
|
13.2
|
%
|
11.7
|
%
|
11.7
|
%
|
||||||||||||||
|
Note:
The results reported for 2005 and 2004 reflect the adoption of
SFAS No.
123R.
(a)
Excludes business realignment charge of $5.9 million pre-tax or
$(.6)
million after-tax for the fourth quarter and $22.5 million pre-tax
or
$13.4 million after-tax for the twelve months.
(b)
Excludes business realignment charge of $11.7 million pre-tax or
$8.8
million after-tax for the fourth quarter and $96.5 million pre-tax
or
$60.6 million after-tax for the twelve months.
(c)
Excludes adjustment to income tax contingency reserves of ($61.1)
million
for the twelve months.
|
||||||||||||||||||||||
|
The
Hershey Company
|
||||
|
Consolidated
Balance Sheets
|
||||
|
as
of December 31, 2005 and December 31, 2004
|
||||
|
(in
thousands of dollars)
|
||||
|
Assets
|
2005
|
2004
|
||
|
Cash
and Cash Equivalents
|
$
67,183
|
$
54,837
|
||
|
Accounts
Receivable - Trade (Net)
|
559,289
|
408,930
|
||
|
Deferred
Income Taxes
|
78,196
|
61,756
|
||
|
Inventories
|
610,284
|
557,180
|
||
|
Prepaid
Expenses and Other
|
93,988
|
114,991
|
||
|
Total
Current Assets
|
1,408,940
|
1,197,694
|
||
|
Net
Plant and Property
|
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
|
||||
|
Loans
Payable
|
$
819,115
|
$
622,320
|
||
|
Accounts
Payable
|
167,812
|
148,686
|
||
|
Accrued
Liabilities
|
507,843
|
469,185
|
||
|
Taxes
Payable
|
23,453
|
42,280
|
||
|
|
||||
|
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
|
||
|
Total
Stockholders' Equity
|
1,021,076
|
1,137,102
|
||
|
Total
Liabilities and Stockholders' Equity
|
$
4,295,236
|
$
3,812,784
|
||
|
Note:
The Consolidated Balance Sheets as of December 31, 2005 and 2004
reflect
the adoption
of SFAS No. 123R.
|
||||