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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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______________________________
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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
|
|
Securities
Exchange Act of 1934
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October
19,
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)
534-4200
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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
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
October 19, 2006, The Hershey Company (“the Company”) announced sales and
earnings for the third quarter of 2006. A copy of the Company’s press release is
attached hereto as Exhibit 99.1 and incorporated herein by reference.
The
information in Item 2.02 of 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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(d)
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Exhibits
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99.1
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Press
Release dated October 19, 2006
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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:
October 19, 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
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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 October 19, 2006
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Page
3 of
3 Pages
Exhibit
99.1
HERSHEY
ANNOUNCES THIRD QUARTER RESULTS
· Reported
earnings per share $0.77 diluted; $0.78 diluted from operations,
+8.3%
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·
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Revises
2006 net sales growth to be within long-term 3-4% range and the
increase
in diluted earnings per share from operations to be slightly below
long-term 9-11% range
|
· Sets
2007 expectations within targets of long-term objectives
· Announces
acquisition of Dagoba Organic Chocolate, LLC
HERSHEY,
Pa., October 19, 2006 — The Hershey Company (NYSE:HSY) today announced
sales and earnings for the third quarter ended October 1, 2006. Consolidated
net
sales were $1,413,361,000, up 3.3 percent compared with $1,368,240,000 for
the
third quarter of 2005. Reported net income for the third quarter of 2006
was
$183,665,000, or $0.77 per share-diluted, compared with $114,152,000 or $0.46
per share-diluted, for the comparable period of 2005.
The
results reflect the expensing of employee stock options and other share-based
compensation for all periods presented in accordance with Financial Accounting
Standards Board Statement of Financial Accounting Standards No. 123 (Revised
2004), Share-Based Payment, under the modified
retrospective application method. Under the modified retrospective application
method, the results for 2005 were adjusted and are reported as though stock
options granted by the Company had been expensed beginning January 1, 2005.
For
the
third quarter of 2006 and 2005, these results, prepared in accordance with
generally accepted accounting principles (“GAAP”), include net pre-tax charges
of $1.7 million and $101.4 million, or $0.01 and $0.26 per share, respectively,
associated with the previously announced business realignment initiatives
to
advance the Company’s value-enhancing strategy. Net income from operations,
which excludes the net charges for the third quarter of 2006 and 2005, was
$184,778,000, or $0.78 per share-diluted in 2006, compared with $179,960,000,
or
$0.72 per share-diluted in 2005, an increase of 8.3 percent in earnings per
share-diluted.
Third-Quarter
Performance
“Hershey’s
results for the third quarter were below expectations,” said Richard H. Lenny,
Chairman, President and Chief Executive Officer. “Following a period of
sustained in-market success, we experienced a slowdown in consumer takeaway
and
thus, a loss of market share. While we had solid growth within both our sugar
confectionery and refreshment businesses, within chocolate, the shift from
line
extensions with lower incrementality to more sustainable value-added platforms
has taken longer than anticipated. Although Hershey’s share declined in total
for the quarter, seasonal performance continues to be strong with Halloween
off
to a good start.”
Sales
for
the quarter increased 3.3 percent through a combination of growth within
dark
chocolate and solid seasonal shipments. Overall strong expense control and
the
impact of the share buyback resulted in an 8.3 percent increase in diluted
earnings per share from operations. “The objective for the balance of 2006 is to
regain Hershey’s marketplace momentum by focusing on new platforms and
advantaged customers. Therefore, we’ve significantly increased our consumer and
customer support. This investment will strengthen Hershey’s leadership position
within chocolate by leveraging our core brands and delivering strong
introductory programming for the new platforms, most notably Cacao
Reserve,” Lenny stated.
“It’s
within this strategic objective of strengthening Hershey’s chocolate leadership,
that today, we’re also announcing the acquisition of the assets of Dagoba
Organic Chocolate, LLC. This business complements our premium chocolate growth
platform and clearly positions Hershey as a key player within the high growth,
on trend organic market. As with the Scharffen Berger and Joseph Schmidt
acquisitions, Dagoba will extend our reach to those consumers and customers
who
are seeking a superior chocolate experience.”
Nine-Months
Results and Outlook
For
the
first nine months of 2006, consolidated net sales were $3,598,156,000, compared
with $3,483,101,000 for the first nine months of 2005. Reported net income
for
the first nine months of 2006 was $403,073,000, or $1.68 per share-diluted,
compared with $320,397,000, or $1.29 per share-diluted, for the first nine
months of 2005. For the first nine months of 2006 and 2005, these results,
prepared in accordance with GAAP, include net pre-tax charges of $6.0 million
and $101.4 million, or $0.01 and $0.26 per share, respectively, associated
with
the previously announced business realignment initiatives to advance the
Company’s value-enhancing strategy. Net income from operations, which excludes
the net charges for the first nine months of 2006 and 2005, was $407,211,000,
or
$1.69 per share-diluted, compared with $386,205,000, or $1.55 per share-diluted
in 2005, an increase of 9.0 percent in earnings per share-diluted.
“Based
on
the results through the third quarter and our marketplace initiatives for
the
balance of the year, we now anticipate net sales growth for 2006 to be within
our long-term 3-4 percent range and the increase in diluted earnings per
share
from operations to be slightly below our on-going 9-11 percent
expectations.
“As
we
look to 2007, we’re committed to delivering a superior value proposition to our
consumers and customers. Our strategic focus will be to accelerate growth
behind
Hershey’s core brands, successfully build new platforms, primarily in dark
chocolate and refreshment, and better leverage Hershey’s scale at retail. While
we anticipate somewhat higher input costs in 2007, we’re working on plans to
address these cost pressures. Therefore, through this combination of improved
marketplace performance and overall cost control, we expect to achieve net
sales
growth in 2007 within our 3-4 percent long-term goal, with an increase in
diluted earnings per share from operations within our on-going 9-11 percent
expectations,” Lenny concluded.
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.
During
the second half of 2005, the Company recorded pre-tax charges associated
with
business realignment initiatives of $119.0 million or $0.29 per share-diluted.
Net pre-tax charges for business realignment initiatives of $6.0 million,
or
$0.01 per share-diluted, were recorded during the first nine-months of 2006.
Based on our current estimates, the total cost to implement the business
realignment initiatives is expected to be under $130 million before tax or
$0.30
to $0.32 per share-diluted. The business realignment program is expected
to be
fully completed by the end of 2006.
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: our ability to implement and generate expected ongoing
annual savings from the initiatives to advance our value-enhancing strategy;
changes in raw material and other costs and selling price increases; our
ability
to implement improvements to and reduce costs associated with our supply
chain;
pension cost factors, such as actuarial assumptions, market performance and
employee retirement decisions; changes in our stock price, and resulting
impacts
on our expenses for incentive compensation, stock options and certain employee
benefits; market demand for our new and existing products; changes in our
business environment, including actions of competitors and changes in consumer
preferences; changes in governmental laws and regulations, including taxes;
risks and uncertainties related to our international operations; and such
other
matters as discussed in our Annual Report on Form 10-K for 2005.
#
#
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Media
Contact:
|
Kirk
Saville
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717-534-7641
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Financial
Contact:
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Mark
Pogharian
|
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 October 1, 2006 and October 2,
2005
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|||||||||||||
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(in
thousands except per share amounts)
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|||||||||||||
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Third
Quarter
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Nine
Months
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||||||||||||
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2006
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2005
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2006
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2005
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||||||||||
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Net
Sales
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$
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1,413,361
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$
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1,368,240
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$
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3,598,156
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$
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3,483,101
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|||||
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Costs
and Expenses:
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|||||||||||||
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Cost
of Sales
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870,171
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849,939
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2,216,424
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2,140,675
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|||||||||
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Selling,
Marketing and Administrative
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221,842
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228,168
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660,114
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687,984
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|||||||||
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Business
Realignment Charge, net
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1,568
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84,843
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9,139
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84,843
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|||||||||
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Total
Costs and Expenses
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1,093,581
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1,162,950
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2,885,677
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2,913,502
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|||||||||
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Income
Before Interest and Income Taxes (EBIT)
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319,780
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205,290
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712,479
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569,599
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|||||||||
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Interest
Expense, net
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31,835
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23,701
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84,528
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63,730
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|||||||||
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Income
Before Income Taxes
|
287,945
|
181,589
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627,951
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505,869
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|||||||||
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Provision
for Income Taxes
|
104,280
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67,437
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224,878
|
185,472
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|||||||||
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Net
Income
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$
|
183,665
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$
|
114,152
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$
|
403,073
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$
|
320,397
|
|||||
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Net
Income Per Share - Basic - Common
|
$
|
0.81
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$
|
0.48
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$
|
1.75
|
$
|
1.34
|
|||||
|
- Basic - Class B
|
$
|
0.72
|
$
|
0.43
|
$
|
1.57
|
$
|
1.21
|
|||||
|
- Diluted
|
$
|
0.77
|
$
|
0.46
|
$
|
1.68
|
$
|
1.29
|
|||||
|
Shares
Outstanding - Basic - Common
|
173,232
|
183,854
|
175,977
|
184,648
|
|||||||||
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- Basic - Class B
|
60,816
|
60,818
|
60,817
|
60,822
|
|||||||||
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- Diluted
|
237,681
|
248,368
|
240,326
|
249,233
|
|||||||||
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Key
Margins:
|
|||||||||||||
|
Gross
Margin
|
38.4
|
%
|
37.9
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%
|
38.4
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%
|
38.5
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%
|
|||||
|
EBIT
Margin
|
22.6
|
%
|
15.0
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%
|
19.8
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%
|
16.4
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%
|
|||||
|
Net
Margin
|
13.0
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%
|
8.3
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%
|
11.2
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%
|
9.2
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%
|
|||||
|
The
Hershey Company
|
|||||||||||||
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Pro
Forma Summary of Consolidated Statements of
Income
|
|||||||||||||
|
for
the periods ended October 1, 2006 and October 2,
2005
|
|||||||||||||
|
(in
thousands except per share amounts)
|
|||||||||||||
|
Third
Quarter
|
Nine
Months
|
||||||||||||
|
2006
|
2005
|
2006
|
2005
|
||||||||||
|
Net
Sales
|
$
|
1,413,361
|
$
|
1,368,240
|
$
|
3,598,156
|
$
|
3,483,101
|
|||||
|
Costs
and Expenses:
|
|||||||||||||
|
Cost
of Sales
|
870,171
|
833,418
|
(d)
|
2,219,623
|
(a)
|
2,124,154
|
(d)
|
||||||
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Selling,
Marketing and Administrative
|
221,734
|
(b)
|
228,168
|
660,006
|
(b)
|
687,984
|
|||||||
|
Business
Realignment Charge, net
|
---
|
(c)
|
---
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(e)
|
---
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(c)
|
---
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(e)
|
|||||
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Total
Costs and Expenses
|
1,091,905
|
1,061,586
|
2,879,629
|
2,812,138
|
|||||||||
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Income
Before Interest and Income Taxes (EBIT)
|
321,456
|
306,654
|
718,527
|
670,963
|
|||||||||
|
Interest
Expense, net
|
31,835
|
23,701
|
84,528
|
63,730
|
|||||||||
|
Income
Before Income Taxes
|
289,621
|
282,953
|
633,999
|
607,233
|
|||||||||
|
Provision
for Income Taxes
|
104,843
|
102,993
|
226,788
|
221,028
|
|||||||||
|
Net
Income
|
$
|
184,778
|
$
|
179,960
|
$
|
407,211
|
$
|
386,205
|
|||||
|
Net
Income Per Share - Basic - Common
|
$
|
0.81
|
$
|
0.75
|
$
|
1.77
|
$
|
1.61
|
|||||
|
-
Basic - Class B
|
$
|
0.73
|
$
|
0.68
|
$
|
1.59
|
$
|
1.46
|
|||||
|
-
Diluted
|
$
|
0.78
|
$
|
0.72
|
$
|
1.69
|
$
|
1.55
|
|||||
|
Shares
Outstanding - Basic - Common
|
173,232
|
183,854
|
175,977
|
184,648
|
|||||||||
|
-
Basic - Class B
|
60,816
|
60,818
|
60,817
|
60,822
|
|||||||||
|
-
Diluted
|
237,681
|
248,368
|
240,326
|
249,233
|
|||||||||
|
Key
Margins:
|
|||||||||||||
|
Adjusted
Gross Margin
|
38.4
|
%
|
39.1
|
%
|
38.3
|
%
|
39.0
|
%
|
|||||
|
Adjusted
EBIT Margin
|
22.7
|
%
|
22.4
|
%
|
20.0
|
%
|
19.3
|
%
|
|||||
|
Adjusted
Net Margin
|
13.1
|
%
|
13.2
|
%
|
11.3
|
%
|
11.1
|
%
|
|||||
|
(a)
Excludes business realignment credit of $(3.2) million pre-tax
or $(2.0)
million after-tax for the nine months.
(b)
Excludes business realignment charge of $0.1 million pre-tax or
$0.1
million after-tax for the third quarter and the nine months.
(c)
Excludes business realignment charge of $1.6 million pre-tax or
$1.0
million after-tax for the third quarter and $9.1 million pre-tax
or $6.0
million after-tax for the nine months.
(d)
Excludes business realignment charge of $16.6 million pre-tax or
$14.0
million after-tax for the third quarter and the nine months.
(e)
Excludes business realignment charge of $84.8 million pre-tax or
$51.8
million after-tax for the third quarter and the nine
months.
|
|||||||||||||
|
The
Hershey Company
|
|||||||
|
Consolidated
Balance Sheets
|
|||||||
|
as
of October 1, 2006 and December 31, 2005
|
|||||||
|
(in
thousands of dollars)
|
|||||||
|
Assets
|
2006
|
2005
|
|||||
|
Cash
and Cash Equivalents
|
$
|
47,635
|
$
|
67,183
|
|||
|
Accounts
Receivable - Trade (Net)
|
720,861
|
559,289
|
|||||
|
Deferred
Income Taxes
|
66,844
|
78,196
|
|||||
|
Inventories
|
767,754
|
610,284
|
|||||
|
Prepaid
Expenses and Other
|
97,353
|
93,988
|
|||||
|
Total
Current Assets
|
1,700,447
|
1,408,940
|
|||||
|
Net
Plant and Property
|
1,639,890
|
1,659,138
|
|||||
|
Goodwill
|
490,215
|
487,338
|
|||||
|
Other
Intangibles
|
139,562
|
142,626
|
|||||
|
Other
Assets
|
589,348
|
597,194
|
|||||
|
Total
Assets
|
$
|
4,559,462
|
$
|
4,295,236
|
|||
|
Liabilities
and Stockholders' Equity
|
|||||||
|
Loans
Payable
|
$
|
1,029,034
|
$
|
819,115
|
|||
|
Accounts
Payable
|
163,959
|
167,812
|
|||||
|
Accrued
Liabilities
|
448,938
|
507,843
|
|||||
|
Taxes
Payable
|
14,877
|
23,453
|
|||||
|
Total
Current Liabilities
|
1,656,808
|
1,518,223
|
|||||
|
Long-Term
Debt
|
1,255,162
|
942,755
|
|||||
|
Other
Long-Term Liabilities
|
411,972
|
412,929
|
|||||
|
Deferred
Income Taxes
|
405,201
|
400,253
|
|||||
|
Total
Liabilities
|
3,729,143
|
3,274,160
|
|||||
|
Total
Stockholders' Equity
|
830,319
|
1,021,076
|
|||||
|
Total
Liabilities and Stockholders' Equity
|
$
|
4,559,462
|
$
|
4,295,236
|
|||