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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
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Securities
Exchange Act of 1934
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February
1,
2010
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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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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
February 2, 2010, The Hershey Company (“the Company”) announced sales and
earnings for the fourth quarter and full year ended December 31,
2009.
The
information in Item 2.02 of this Current Report, including applicable portions
of 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
8.01
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Other
Events
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Also on
February 2, 2010, the Company announced that on February 1, 2010 its Board of
Directors declared a quarterly dividend on the Company’s Common Stock and Class
B Common Stock and increased the quarterly dividend.
A copy of
the Company’s press release is attached hereto as Exhibit 99.1 and incorporated
herein by reference.
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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 February 2, 2010
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SIGNATURE
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Company has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Date: February
2, 2010
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THE
HERSHEY COMPANY
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By:
/s/ Humberto P.
Alfonso
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Humberto
P. Alfonso
Senior
Vice President, Chief Financial
Officer
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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 February 2,
2010
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Exhibit 99.1
HERSHEY
ANNOUNCES FOURTH QUARTER AND FULL-YEAR 2009
RESULTS;
REAFFIRMS OUTLOOK FOR 2010; INCREASES
QUARTERLY
DIVIDEND
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·
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Fourth
quarter and full-year 2009 net sales increase 2.2% and 3.2%,
respectively
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·
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Fourth
quarter earnings per share-diluted of $0.55 as reported and $0.63
adjusted
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·
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Full-year
2009 earnings per share-diluted of $1.90 as reported and $2.17
adjusted
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·
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Outlook
reaffirmed for 2010 growth in net sales of 3-5% and an increase in
adjusted
earnings
per share-diluted of 6-8%
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·
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Quarterly
dividend declared and increased 7.6% on Common
Stock
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HERSHEY, Pa., February 2, 2010
— The Hershey Company (NYSE: HSY) today announced sales and earnings for
the fourth quarter ended December 31, 2009. Consolidated net sales were
$1,407,336,000 compared with $1,377,380,000 for the fourth quarter of 2008.
Reported net income for the fourth quarter of 2009 was $126,779,000 or $0.55 per
share-diluted, compared with $82,155,000 or $0.36 per share-diluted for the
comparable period of 2008.
For the
fourth quarters of 2009 and 2008, these results, prepared in accordance with
U.S. generally accepted accounting principles (GAAP), include net pre-tax
charges of $26.5 million and $79.7 million, or $0.08 and $0.23 per
share-diluted, respectively. These charges were associated with the Global
Supply Chain Transformation (GSCT) program. Adjusted net income,
which excludes these net charges, was $144,352,000 or $0.63 per
share-diluted in the
fourth quarter of 2009, compared with $133,842,000, or $0.59 per share-diluted
in the fourth quarter of 2008, an increase of 6.8 percent in adjusted earnings
per share-diluted.
For the
full year 2009, consolidated net sales were $5,298,668,000 compared with
$5,132,768,000 in 2008, an increase of 3.2 percent. Reported net
income for 2009 was $435,994,000 or $1.90 per share-diluted, compared with
$311,405,000, or $1.36 per share-diluted for 2008.
For the
full years 2009 and 2008, these results, prepared in accordance with GAAP,
include net pre-tax charges of $99.1 million and $180.7 million, or $0.27 and
$0.52 per share-diluted, respectively. These charges were associated with the
GSCT program. Adjusted net income for the full year 2009, which
excludes these net charges, was $496,817,000, or $2.17 per share-diluted,
compared with $430,522,000 or $1.88 per share-diluted in 2008, an increase of
15.4 percent in adjusted earnings per share-diluted.
During
the fourth quarter of 2009, the GSCT program concluded. Total charges were
$629.1 million, including $85.0 million in non-cash pension settlement charges
discussed in prior quarters. Excluding pension settlement charges, project
implementation, management and start-up costs of $544.1 million were less than
the estimate of $575 million to $600 million. Except for possible non-cash
pension settlement charges, the Company does not expect any significant charges
related to the GSCT program in 2010. Total GSCT program savings through 2009 are
approximately $160 million. Total ongoing annual savings from the GSCT program
of approximately $175 million to $185 million will be achieved by the end of
2010. Savings from the program fueled the investment in Hershey’s brand-building
and selling capabilities, enabling our marketplace success.
On
February 1, 2010, the Board of Directors of The Hershey Company declared a
quarterly dividend of $0.32 on the Common Stock, an increase of $0.0225 per
share. In addition, the Board declared a dividend of $0.29 on the Class B Common
Stock, an increase of $0.0222 per share. The dividends are payable March 15,
2010, to stockholders of record February 25, 2010.
Fourth Quarter Performance
and Outlook
“During
2009, Hershey made excellent progress in its consumer-driven approach to core
brand investment while implementing significant, but necessary, price
increases,” said David J. West, President and Chief Executive Officer. “Our
fourth quarter results represent a solid finish to a year marked by good
progress against our key strategic initiatives despite the backdrop of the
macroeconomic issues affecting consumers. Net sales increased 2.2
percent in the quarter, driven primarily by pricing and improvements in our
international business, including an approximate one point benefit from foreign
currency exchange rates. Importantly, base business volume trends,
while down due to volume elasticity associated with the U.S. pricing action,
sequentially improved in the fourth quarter, net of the previously communicated
decisions to close our on-line gifts business and discontinue certain premium
chocolate products. Additionally, as communicated in October, due to timing,
shipments of Valentine’s and Easter seasonal products were lower in the fourth
quarter of 2009 versus 2008.
“Strong
performance at key retail customers continues and overall marketplace
performance was in line with our expectations. Where we have focused resources,
particularly in the food, convenience and certain non-measured channels, results
continue to be solid. Specifically, U.S. retail takeaway for the
12-weeks and 52-weeks ended January 2, 2010, in channels that account for over
80 percent of our U.S. retail business, was up 6.0 percent and 7.2 percent,
respectively. In the channels measured by syndicated data, U.S. market share
increased 0.1 points for the full year and, as expected, declined 0.4 points for
the 12-weeks ended January 2, 2010. These results were driven by the investments
we have made behind our core brands, including advertising, up about 50 percent
in both the fourth quarter and full year.
“Fourth
quarter profitability was driven by net price realization and supply chain
efficiencies and productivity, partially offset by higher input costs, marketing
expenses and employee-related costs, including incentive compensation and
pension expense. Adjusted income before interest and income taxes
includes a non-recurring benefit resulting from the impact of last-in, first-out
(LIFO) inventory accounting for targeted inventory reductions. The effective
income tax rate in the fourth quarter of 33.6 percent, excluding the impact of
charges associated with the GSCT program, was lower than our initial
expectations. This resulted in a $0.02 benefit in adjusted earnings per
share-diluted in both the fourth quarter and full year 2009. The LIFO gain and
tax benefit essentially offset the costs related to our consideration of a
transaction with Cadbury plc.
“The
earnings growth, as well as the Company’s continued focus on improving working
capital throughout the year and in the fourth quarter, generated a significant
increase in operating cash flow in 2009. Therefore, we are pleased to announce
an increase to our quarterly dividend. This increase is a result of the
Company’s strong balance sheet and the continued ability of our business to
generate consistent and predictable free cash flow.
“Entering
2010 we feel good about our prospects as we continue to execute our
consumer-driven strategy. Our brand-building initiatives continue to resonate
with consumers as evidenced by our core brand market share gains. We’ll continue
with this disciplined approach to investment. During the first half of 2010, the
distribution and rollout of our new Hershey’s Bliss white
chocolate and expansion of the
Pieces format to include Hershey’s Special Dark, Almond Joy and York will continue. We expect
to increase advertising by 25 to 30 percent during the year, supporting new
product launches and core brands - particularly Hershey’s, Reese’s, Hershey’s
Kisses, Bliss, Twizzlers and Kit Kat. We will also launch
new core brand advertising campaigns behind the Almond Joy, Mounds and York brands. Increased levels of
consumer investment and brand support, as well as collaborative efforts with
retail customers in all classes of trade will continue and should deliver
improvement in net sales within our 3 to 5 percent long-term objective.
Additionally, we have good visibility into our full-year cost structure and
expect our ongoing growth in adjusted earnings per share-diluted to be within
our long-term objective of 6 to 8 percent,” West concluded.
Note:
In this 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 summary of
consolidated statements of income, 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.
In 2008,
the Company recorded GAAP charges of $130.0 million, or $0.38 per share-diluted,
attributable to the GSCT program and $45.7 million, or $0.13 per share-diluted,
related to the impairment of intangible trademark values, primarily Mauna Loa, recorded in the
fourth quarter of 2008. Additionally, the Company recorded business realignment
and impairment charges of $4.9 million, or $0.01 per share-diluted, related to
the business realignment in Brazil.
In 2009,
the Company recorded GAAP charges, including non-cash pension settlement
charges, of $99.1 million, or $0.27 per share-diluted, attributable to the GSCT
program.
The GSCT
program resulted in total pre-tax charges and non-recurring project
implementation costs of $629.1 million, including non-cash pension settlement
charges (see Appendix A) of $85.0 million to date. Except for possible non-cash
pension settlement charges, the Company does not expect any significant charges
related to the GSCT program in 2010.
Below is
a reconciliation of GAAP and non-GAAP items to the Company’s adjusted earnings
per share-diluted:
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2008
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2009
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Reported
EPS-Diluted
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$1.36
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$1.90
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Total
Business Realignment
and
Impairment Charges
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$0.52
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$0.27
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Adjusted
EPS-Diluted*
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$1.88
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$2.17
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*Excludes
business realignment and impairment charges.
Possible
adjustments to exclude business realignment charges for 2010 are not known at
this time; therefore, the Company is unable to provide a reconciliation of
adjusted earnings per share-diluted for 2010.
Appendix
A
Financial
Accounting Standards Board Statement of Financial Accounting Standards No. 88,
Employers’ Accounting for
Settlements and Curtailments of Defined Benefit Pension Plans and for
Termination Benefits (as amended) (now FASB Accounting Standards
Codification 715-30-35) (“SFAS No. 88”) requires pension settlement charges to
be recorded if withdrawals from pension plans in a calendar year exceed a
certain level.
Pension
settlement charges are non-cash charges for the Company. Such charges accelerate
the recognition of pension expenses related to actuarial gains and losses
resulting from interest rate changes and differences in actual versus assumed
returns on pension assets. The Company normally amortizes actuarial gains and
losses over a period of about 13 years.
The GSCT
program charges recorded in 2007 and 2008 included pension settlement charges of
approximately $24.6 million as employees leaving the Company under the program
have withdrawn lump sums from the defined benefit pension
plans. Pension settlement charges recorded in 2009 totaled
approximately $60.4 million.
The GSCT
program resulted in total pre-tax charges and non-recurring project
implementation costs of $629.1 million, including non-cash pension settlement
charges of $85.0 million.
Safe Harbor
Statement
This
release contains statements that are forward-looking. These statements are made
based upon current expectations that are subject to risk and uncertainty. Actual
results may differ materially from those contained in the forward-looking
statements. Factors that could cause results to differ materially include, but
are not limited to: issues or concerns related to the quality and safety of our
products, ingredients or packaging; changes in raw material and other costs and
selling price increases, including volume declines associated with pricing
elasticity; market demand for our new and existing products; increased
marketplace competition; political, economic, and/or financial market
conditions; changes in governmental laws and regulations, including taxes; risks
and uncertainties related to our international operations; the impact of future
developments related to the investigation by government regulators of alleged
pricing practices by members of the confectionery industry, including risks of
subsequent litigation or further government action; pension cost factors, such
as actuarial assumptions, market performance and employee retirement decisions;
and such other matters as discussed in our Annual Report on Form 10-K for
2008. All information in this press release is as of February 2,
2010. The Company undertakes no duty to update any forward-looking statement to
conform the statement to actual results or changes in the Company’s
expectations.
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.
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Financial
Contact:
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Mark
Pogharian
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717-534-7556
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Media
Contact:
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Kirk
Saville
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717-534-7641
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Summary
of Consolidated Statements of Income
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for
the periods ended December 31, 2009 and December 31, 2008
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(in
thousands except per share amounts)
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Fourth Quarter
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Twelve Months
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2009
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2008
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2009
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2008
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Net
Sales
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$ | 1,407,336 | $ | 1,377,380 | $ | 5,298,668 | $ | 5,132,768 | ||||||||
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Costs
and Expenses:
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Cost
of Sales
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836,815 | 879,854 | 3,245,531 | 3,375,050 | ||||||||||||
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Selling,
Marketing and Administrative
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334,040 | 284,057 | 1,208,672 | 1,073,019 | ||||||||||||
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Business
Realignment and Impairment Charges, net
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24,125 | 60,053 | 82,875 | 94,801 | ||||||||||||
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Total
Costs and Expenses
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1,194,980 | 1,223,964 | 4,537,078 | 4,542,870 | ||||||||||||
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Income
Before Interest and Income Taxes (EBIT)
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212,356 | 153,416 | 761,590 | 589,898 | ||||||||||||
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Interest
Expense, net
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21,527 | 24,965 | 90,459 | 97,876 | ||||||||||||
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Income
Before Income Taxes
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190,829 | 128,451 | 671,131 | 492,022 | ||||||||||||
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Provision
for Income Taxes
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64,050 | 46,296 | 235,137 | 180,617 | ||||||||||||
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Net
Income
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$ | 126,779 | $ | 82,155 | $ | 435,994 | $ | 311,405 | ||||||||
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Net
Income Per Share - Basic - Common
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$ | 0.57 | $ | 0.37 | $ | 1.97 | $ | 1.41 | ||||||||
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- Basic - Class B
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$ | 0.51 | $ | 0.33 | $ | 1.77 | $ | 1.27 | ||||||||
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- Diluted - Common
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$ | 0.55 | $ | 0.36 | $ | 1.90 | $ | 1.36 | ||||||||
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Shares
Outstanding - Basic - Common
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167,623 | 166,734 | 167,136 | 166,709 | ||||||||||||
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- Basic - Class B
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60,709 | 60,713 | 60,709 | 60,777 | ||||||||||||
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- Diluted - Common
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229,644 | 228,504 | 228,995 | 228,697 | ||||||||||||
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Key
Margins:
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Gross
Margin
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40.5 | % | 36.1 | % | 38.7 | % | 34.2 | % | ||||||||
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EBIT
Margin
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15.1 | % | 11.1 | % | 14.4 | % | 11.5 | % | ||||||||
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Net
Margin
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9.0 | % | 6.0 | % | 8.2 | % | 6.1 | % | ||||||||
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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, 2009 and December 31, 2008
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(in
thousands except per share amounts)
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Fourth Quarter
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Twelve Months
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2009
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2008
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2009
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2008
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Net
Sales
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$ | 1,407,336 | $ | 1,377,380 | $ | 5,298,668 | $ | 5,132,768 | ||||||||
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Costs
and Expenses:
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Cost
of Sales
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835,171 | (a) | 862,233 | (d) | 3,235,395 | (a) | 3,297,283 | (d) | ||||||||
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Selling,
Marketing and Administrative
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333,357 | (b) | 282,020 | (e) | 1,202,552 | (b) | 1,064,917 | (e) | ||||||||
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Business
Realignment and Impairment Charges, net
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--- | (c) | --- | (f) | --- | (c) | --- | (f) | ||||||||
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Total
Costs and Expenses
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1,168,528 | 1,144,253 | 4,437,947 | 4,362,200 | ||||||||||||
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Income
Before Interest and Income Taxes (EBIT)
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238,808 | 233,127 | 860,721 | 770,568 | ||||||||||||
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Interest
Expense, net
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21,527 | 24,965 | 90,459 | 97,876 | ||||||||||||
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Income
Before Income Taxes
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217,281 | 208,162 | 770,262 | 672,692 | ||||||||||||
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Provision
for Income Taxes
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72,929 | 74,320 | 273,445 | 242,170 | ||||||||||||
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Adjusted
Net Income
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$ | 144,352 | $ | 133,842 | $ | 496,817 | $ | 430,522 | ||||||||
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Adjusted
Net Income Per Share - Basic - Common
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$ | 0.65 | $ | 0.60 | $ | 2.24 | $ | 1.94 | ||||||||
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-
Basic - Class B
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$ | 0.59 | $ | 0.54 | $ | 2.02 | $ | 1.75 | ||||||||
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-
Diluted - Common
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$ | 0.63 | $ | 0.59 | $ | 2.17 | $ | 1.88 | ||||||||
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Shares
Outstanding - Basic - Common
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167,623 | 166,734 | 167,136 | 166,709 | ||||||||||||
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- Basic - Class B
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60,709 | 60,713 | 60,709 | 60,777 | ||||||||||||
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- Diluted - Common
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229,644 | 228,504 | 228,995 | 228,697 | ||||||||||||
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Key
Margins:
|
||||||||||||||||
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Adjusted
Gross Margin
|
40.7 | % | 37.4 | % | 38.9 | % | 35.8 | % | ||||||||
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Adjusted
EBIT Margin
|
17.0 | % | 16.9 | % | 16.2 | % | 15.0 | % | ||||||||
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Adjusted
Net Margin
|
10.3 | % | 9.7 | % | 9.4 | % | 8.4 | % | ||||||||
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(a) Excludes
business realignment and impairment charges of $1.6 million pre-tax or
$1.1 million after-tax for the fourth quarter and $10.1 million pre-tax or
$6.3 million after-tax for the twelve months.
(b) Excludes
business realignment and impairment charges of $0.7 million pre-tax or
$0.5 million after-tax for the fourth quarter and $6.1 million pre-tax or
$3.8 million after-tax for the twelve months.
(c) Excludes
business realignment and impairment charges of $24.1 million pre-tax or
$16.0 million after-tax for the fourth quarter and $82.9 million pre-tax
or $50.7 million after-tax for the twelve months.
(d) Excludes
business realignment and impairment charges of $17.6 million pre-tax or
$12.1 million after-tax for the fourth quarter and $77.8 million pre-tax
or $53.4 million after-tax for the twelve months.
(e) Excludes
business realignment and impairment charges of $2.0 million pre-tax or
$1.3 million after-tax for the fourth quarter and $8.1 million
pre-tax or $4.9 million after-tax for the twelve months.
(f) Excludes
business realignment and impairment charges of $60.1 million pre-tax or
$38.3 million after-tax for the fourth quarter and $94.8 million
pre-tax or $60.8 million after-tax for the twelve months.
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||||||||||||||||
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The
Hershey Company
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||||||||
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Consolidated
Balance Sheets
|
||||||||
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as
of December 31, 2009 and December 31, 2008
|
||||||||
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(in
thousands of dollars)
|
||||||||
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Assets
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2009
|
2008
|
||||||
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Cash
and Cash Equivalents
|
$ | 253,605 | $ | 37,103 | ||||
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Accounts
Receivable - Trade (Net)
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410,390 | 455,153 | ||||||
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Deferred
Income Taxes
|
39,868 | 70,903 | ||||||
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Inventories
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519,712 | 592,530 | ||||||
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Prepaid
Expenses and Other
|
161,859 | 189,256 | ||||||
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Total
Current Assets
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1,385,434 | 1,344,945 | ||||||
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Net
Plant and Property
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1,404,767 | 1,458,949 | ||||||
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Goodwill
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571,580 | 554,677 | ||||||
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Other
Intangibles
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125,520 | 110,772 | ||||||
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Deferred
Income Taxes
|
4,353 | 13,815 | ||||||
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Other
Assets
|
183,377 | 151,561 | ||||||
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Total
Assets
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$ | 3,675,031 | $ | 3,634,719 | ||||
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Liabilities and Stockholders'
Equity
|
||||||||
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Loans
Payable
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$ | 39,313 | $ | 501,504 | ||||
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Accounts
Payable
|
287,935 | 249,454 | ||||||
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Accrued
Liabilities
|
546,462 | 504,065 | ||||||
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Taxes
Payable
|
36,918 | 15,189 | ||||||
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Total
Current Liabilities
|
910,628 | 1,270,212 | ||||||
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Long-Term
Debt
|
1,502,730 | 1,505,954 | ||||||
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Other
Long-Term Liabilities
|
501,334 | 504,963 | ||||||
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Deferred
Income Taxes
|
- | 3,646 | ||||||
|
Total
Liabilities
|
2,914,692 | 3,284,775 | ||||||
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Total
Stockholders' Equity
|
760,339 | 349,944 | ||||||
|
Total
Liabilities and Stockholders' Equity
|
$ | 3,675,031 | $ | 3,634,719 | ||||