UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
(X) Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934 (Fee Required)
For the fiscal year ended December 31, 1993
OR
( ) Transition Report Pursuant to
Section 13 or 15(d) of the
Securities Exchange Act of 1934 (No Fee Required)
For the transition period from ..... to .....
Registrant, State of Incorporation,
Address and Telephone Number
Hershey Foods Corporation
Commission I.R.S. Employer
File No. (a Delaware Corporation) Identification No.
1-183 100 Crystal A Drive 23-0691590
Hershey, Pennsylvania 17033
(717) 534-6799
Securities registered pursuant to Section 12(b) of the Act:
Title of each class: Name of each
Common Stock, one dollar par value exchange on
which registered:
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)
Indicate by check mark whether the Registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the Registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes (X) No ( )
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of Registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. (X)
State the aggregate market value of the voting stock held by
non-affiliates of the Registrant as of a specified date within
60 days prior to the date of filing.
Common Stock, one dollar par value - $2,591,310,046, as of
March 1, 1994.
Class B Common Stock, one dollar par value - $4,622,517, as of
March 1, 1994. 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 March 1, 1994.
Indicate the number of shares outstanding of each of the
Registrant's classes of common stock as of the latest
practicable date.
Common Stock, one dollar par value - 72,113,618 shares, as of
March 1, 1994.
Class B Common Stock, one dollar par value - 15,242,979
shares, as of March 1, 1994.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Corporation's 1993 Annual Report to
Stockholders for the year ended December 31, 1993 are
incorporated by reference into Part II and are reproduced herein
as Exhibit 13. Portions of the Proxy Statement for the
Corporation's 1994 Annual Meeting of Stockholders are
incorporated by reference into Part III.
Page 1
PART I
Item 1.BUSINESS
Hershey Foods Corporation and its subsidiaries (the
"Corporation") are engaged in the manufacture, distribution and
sale of consumer food products. The Corporation, primarily
through its Hershey Chocolate U.S.A., Hershey Grocery, Hershey
International and Hershey Pasta Group divisions and its
subsidiary Hershey Canada Inc., produces and distributes a broad
line of chocolate, confectionery, grocery and pasta products.
The Corporation was organized under the laws of the State of
Delaware on October 24, 1927, as a successor to a business
founded in 1894 by Milton S. Hershey.
In March 1993, the Corporation purchased certain assets of
three Cleveland, Ohio area pasta companies: Ideal Macaroni
Company, Il Pranzo D'oro Corporazoine, Inc. and Weiss Noodle
Company. In September 1993, the Corporation purchased all of
the shares of Sperlari, S.r.l. from Heinz Italia S.p.A.
Sperlari manufactures, markets, sells, and distributes a wide
range of confectionery products in Italy, including sugar
candies and nougat. In October 1993, the Corporation purchased
all of the outstanding shares of Overspecht B.V. Through its
subsidiaries, this company manufactures and sells chocolate and
non-chocolate confectionery products, cookies, biscuits, and ice
cream primarily in the Netherlands and Belgium.
The Corporation's principal product groups include: chocolate
and confectionery products sold in the form of bar goods, bagged
items, boxed items, and throat drops; grocery products in the
form of baking ingredients, chocolate drink mixes, peanut
butter, dessert toppings, and beverages; pasta products sold in
a variety of different shapes, sizes and packages; and
refrigerated puddings. The Corporation believes it is a major
factor in these product groups in North America. Operating
profit margins vary considerably among individual products and
brands. Generally, such margins on chocolate and confectionery
products are greater than those on pasta and other food
products.
The Corporation manufactures chocolate and confectionery
products in a variety of packaged forms and markets them under
more than 50 brands. The different packaged forms include
various arrangements of the same bar products, such as boxes,
trays and bags, as well as a variety of different sizes and
weights of the same bar product, such as snack size, standard,
king size, large and giant bars. Among the principal chocolate
and confectionery products in the United States are: HERSHEY'S
COOKIES 'N' MINT chocolate bars, HERSHEY'S HUGS chocolates,
HERSHEY'S HUGS WITH ALMONDS chocolates, HERSHEY'S KISSES
chocolates, HERSHEY'S KISSES WITH ALMONDS chocolates, HERSHEY'S
milk chocolate bars, HERSHEY'S milk chocolate bars with almonds,
HERSHEY'S MINIATURES chocolate bars, AMAZIN' FRUIT gummy bears
fruit candy, BAR NONE candy bars, CADBURY'S CREME EGGS candy,
CARAMELLO candy bars, KIT KAT wafer bars, LUDEN'S throat drops,
MR. GOODBAR milk chocolate bars with peanuts, PETER PAUL ALMOND
JOY candy bars, PETER PAUL MOUNDS candy bars, REESE'S crunchy
peanut butter cups, REESE'S peanut butter cups, REESE'S PIECES
candies, ROLO caramels in milk chocolate, SKOR toffee bars,
SYMPHONY milk chocolate bars, WHATCHAMACALLIT candy bars, Y&S
TWIZZLERS licorice-type candy, YORK peppermint pattie candy, and
5TH AVENUE candy bars.
The Corporation also markets a line of grocery products in the
baking, beverage, peanut butter, puddings and toppings
categories. Principal products include HERSHEY'S baking
chocolate, HERSHEY'S baking chips, HERSHEY'S chocolate drink,
HERSHEY'S chocolate milk mix, HERSHEY'S cocoa, HERSHEY'S
CHOCOLATE SHOPPE toppings, HERSHEY'S syrup, REESE'S peanut
butter and REESE'S peanut butter chips. Refrigerated HERSHEY'S
chocolate bar flavor puddings are available throughout the
United States. HERSHEY'S chocolate milk is produced and sold
under license by approximately 25 independent dairies throughout
the United States, using a chocolate milk mix manufactured by
the Corporation.
Principal products in Canada include CHIPITS chocolate chips,
GLOSETTE chocolate-covered raisins, peanuts and almonds, LIFE
SAVERS candy, OH HENRY! candy bars, PLANTERS peanuts, POT OF
GOLD boxed chocolates, REESE PEANUT BUTTER CUPS candy, and Y&S
TWIZZLERS licorice-type candy.
Page 2
The Corporation's chocolate, confectionery and grocery
products are sold primarily to grocery wholesalers, chain
grocery stores, candy distributors, mass merchandisers, chain
drug stores, vending companies, wholesale clubs, convenience
stores, concessionaires and food distributors by full-time sales
representatives, food brokers and part-time retail sales
merchandisers throughout the United States and Canada. The
Corporation also manufactures, imports, markets, sells and
distributes chocolate products in Mexico under the HERSHEY'S
brand name. These products are sold through chain grocery
stores, food distributors, and wholesale clubs. The Corporation
believes its chocolate and confectionery products are sold in
over 2 million retail outlets in North America. Selected
products in Canada are sold through a network of independent
brokers.
The Corporation manufactures, markets, sells and distributes
high-quality assorted pralines and seasonal chocolate products
in Germany under the GUBOR brand name which are sold directly to
retailers. Additionally, the Corporation imports, markets,
sells and distributes selected HERSHEY'S chocolate and
confectionery products in the Japanese market. In Italy, the
Corporation manufactures, markets, sells, and distributes
various confectionery and nougat products under several brand
names including SPERLARI, DONDI, SCARAMELLINI, FRESH CLUB,
SPRINT, GALATINE, and GNAMMY. In the Netherlands and Belgium,
the Corporation manufactures and sells chocolate and
confectionery products, cookies, biscuits, and ice cream. These
products are sold primarily under private labels, but products
are also marketed and sold under the WIVER and JAMIN brand
names.
The Corporation manufactures and sells quality pasta products
throughout the United States. The Corporation markets its
products on a regional basis under several brand names,
including AMERICAN BEAUTY, LIGHT 'N FLUFFY, P&R, RONZONI, SAN
GIORGIO, and SKINNER, as well as certain private labels. These
products are sold through chain grocery stores, grocery
wholesalers, wholesale clubs, convenience stores and food
distributors.
The Corporation's marketing strategy for its products is based
upon the consistently superior quality of its products, mass
distribution and the best possible consumer value in terms of
price and weight. In addition, the Corporation devotes
considerable resources to the identification, development,
testing, manufacturing and marketing of new products. The
Corporation utilizes a variety of promotional programs for
customers and advertising and promotional programs for
consumers. The Corporation employs promotional programs at
various times during certain seasons of the year to stimulate
sales of certain products. Chocolate, confectionery and grocery
seasonal and holiday related sales have typically been highest
during the third and fourth quarters of the year.
The Corporation recognizes that the mass distribution of its
consumer food products is an important element in maintaining
sales growth and providing service to its customers. The
Corporation attempts to meet the changing demands of its
customers by planning optimum stock levels and reasonable
delivery times consistent with achievement of economies of
distribution. To achieve these objectives, the Corporation has
developed a distribution network from its manufacturing plants,
distribution centers and field warehouses strategically located
throughout the United States, Puerto Rico, Canada and Mexico.
The Corporation uses a combination of public and contract
carriers to deliver its products from the distribution points to
its customers. In conjunction with sales and marketing efforts,
the distribution system has been instrumental in the effective
promotion of new, as well as established, products on both
national and regional scales.
From time to time the Corporation has changed the prices and
weights of its consumer food products to accommodate changes in
the cost of manufacturing, including the cost of raw materials;
the competitive environment; and profit objectives, while at the
same time maintaining consumer value. The Corporation changes
the weight on portions of its standard bar line periodically,
and selected weight changes were made in 1993. As a result of
higher semolina costs, the Corporation implemented a price
increase averaging 3.5% in November 1993 on its pasta products
and announced a curtailment of certain promotional allowances
effective February 1994.
The most significant raw material used in the production of
the Corporation's chocolate and confectionery products is cocoa
beans. This commodity is imported principally from West
African, South American and Far Eastern equatorial regions.
West Africa accounts for approximately 60% of the world's crop.
Cocoa beans are not uniform, and the various grades and
varieties reflect the diverse agricultural practices and natural
conditions found in the many growing areas. The Corporation
buys a mix of cocoa beans to meet its manufacturing objectives.
It attempts to minimize the effect of cocoa bean price
fluctuations by the forward purchasing, from time to time, of
substantial quantities of cocoa beans, chocolate liquor and
cocoa butter, and by the purchase and sale of cocoa futures and
options contracts.
Page 3
The table below sets forth annual cocoa prices for each of the
calendar years indicated. The prices are the monthly average of
the quotations at noon of the three active futures trading
contracts closest to maturity on the New York Coffee, Sugar and
Cocoa Exchange. Because of the Corporation's forward purchasing
practices and premium prices paid for certain varieties of
cocoa beans, these average futures contract prices are not
necessarily indicative of the Corporation's average cost of
cocoa beans or cocoa products.
Cocoa Futures Contract Prices
(cents per pound)
1989 1990 1991 1992 1993
Average 54.6 55.5 52.8 47.6 47.3
High 66.8 63.5 60.0 56.2 56.7
Low 42.4 43.6 45.6 41.3 41.8
Source: International Cocoa Organization Quarterly Bulletin of
Cocoa Statistics
The price of sugar, the Corporation's second most important
commodity for its domestic chocolate and confectionery products,
is subject to price supports under farm legislation. Due to
import quotas and duties imposed to support the price of sugar
established by that legislation, sugar prices paid by United
States users are currently substantially higher than prices on
the world sugar market. The average wholesale list price of
refined sugar, F.O.B. Northeast, has remained relatively stable
in a range of 28 cents to 31 cents per pound for the past ten years.
The Corporation utilizes forward purchasing and other procurement
practices, including, from time to time, the purchase and sale
of sugar futures contracts. Therefore, the reported prices of
sugar are not necessarily indicative of the Corporation's actual
costs.
Other raw materials purchased in substantial quantities for
domestic manufacturing purposes include milk, peanuts, and
almonds. The price of milk is affected by Federal Marketing
Orders and the prices of milk and peanuts are affected by price
support programs administered by the United States Department of
Agriculture. The Food, Agriculture, Conservation, and Trade Act
of 1990, which is a five-year extension of prior farm
legislation, was passed by Congress in October 1990. While this
law is not substantially different from the previous farm
legislation, it continues to have an impact on the price of
sugar, peanuts and milk because it sets price support levels for
these and other commodities.
During the first three quarters of 1993, domestic milk prices
averaged well below year earlier levels, reflecting strong milk
production throughout the country. As a result of the wet
weather conditions in the Midwest during the summer, production
in the Minnesota-Wisconsin milkshed dropped significantly below
the prior year levels in the fourth quarter. For the year, milk
prices were not materially different from the 1992 levels.
As a result of an excellent 1992 crop harvest, domestic market
prices for peanuts were relatively stable through the first
three quarters of 1993. However, prices increased modestly
during the fourth quarter due to a lower than average 1993 crop
harvest.
Domestic almond prices began 1993 at moderate levels but
gradually increased during the first and second quarters due to
very low carry-in stocks and lower than average new crop
prospects. Prices rose substantially during the third and
fourth quarters as the below average 1993 crop was harvested and
prices finished the year at a record high.
Pasta is made from semolina milled from durum wheat, a class
of hard wheat grown in the United States, principally in North
Dakota. The Corporation purchases semolina from commercial
millers and also is engaged in custom milling arrangements to
obtain sufficient quantities of high quality semolina. A
decrease in plantings and adverse weather conditions in the
Midwest combined to reduce the quantity and quality of the 1993
durum wheat crop, and resulted in a substantial cost increase
for this raw material. Supplies are expected to remain tight at
least until the harvest of the new crop during the fall of 1994
and prices may remain at elevated levels in the interim.
Page 4
The Corporation has agreements with Cadbury Beverages Inc. and
affiliated companies which license the Corporation to
manufacture and/or market and distribute PETER PAUL ALMOND JOY
and PETER PAUL MOUNDS confectionery products worldwide as well
as YORK, CADBURY and CARAMELLO confectionery products in the
United States. The Corporation's rights under these agreements
are extendable on a long-term basis at the Corporation's option.
The license for CADBURY and CARAMELLO products is subject to a
minimum sales requirement which the Corporation substantially
exceeded in 1993.
The Corporation also has an agreement with Societe des
Produits Nestle SA, which licenses the Corporation to
manufacture and distribute in the United States the KIT KAT and
ROLO confectionery products. The Corporation's rights under
this agreement are extendable on a long-term basis at the
Corporation's option, subject to certain conditions, including
minimum unit volume sales. In 1993, minimum volume requirements
were substantially exceeded.
The Corporation's products are manufactured and sold in the
Philippines pursuant to a technical assistance and trademark
licensing agreement. The Corporation manufactures and
distributes the SKOR toffee bar in the United States and Canada
under a technology license from Freia Marabou a.s of Oslo, Norway.
The Corporation has license agreements with Snow Brand Milk
Products Co., Ltd. ("Snow Brand") of Sapporo, Japan. Snow Brand
manufactures and sells in Japan certain beverage and ice cream
products under the Corporation's trademarks. The Corporation
has a Technical Assistance and Know-How and Trademark License
Agreement with Hai-Tai Confectionery Co., Ltd. ("Hai-Tai") of
Seoul, South Korea. Pursuant to that agreement, Hai-Tai
manufactures and sells in the South Korean market certain of the
Corporation's chocolate and confectionery products. The
Corporation has a license agreement with Maeil Dairy Industry
Co., Ltd. ("Maeil Dairy") of South Korea. Pursuant to the
agreement, Maeil Dairy manufactures, sells and distributes
HERSHEY'S chocolate drink and chocolate puddings in South Korea.
Competition
Many of the Corporation's brands enjoy wide consumer
acceptance and are among the leading brands sold in the
marketplace. However, these brands are sold in highly
competitive markets and compete with many other multinational,
national, regional and local firms, some of which have resources
in excess of those available to the Corporation.
Trademarks
The Corporation has various registered and unregistered
trademarks, service marks and licenses which are of material
importance to the Corporation's business.
Backlog of Orders
The Corporation manufactures primarily for stock and fills
customer orders from finished goods inventories. While at any
given time there may be some backlog of orders, such backlog is
not material in respect to total sales, nor are the changes from
time to time significant.
Research and Development
The Corporation engages in considerable research activities
which principally involve development of new products,
improvement of the quality of existing products, and improvement
and modernization of production processes. The Corporation also
carries out development and evaluation of new processing
techniques for both current and proposed product lines.
Regulation
The Corporation's domestic plants are subject to inspection by
the Food and Drug Administration and various other governmental
agencies, and its products must comply with regulations under
the Federal Food, Drug and Cosmetic Act and with various
comparable state statutes regulating the manufacturing and
marketing of food products.
Page 5
Environmental Considerations
In the past the Corporation has made investments based on
compliance with environmental laws and regulations. Such
expenditures have not been material with respect to the
Corporation's capital expenditures, earnings or competitive
position.
Employees
As of December 31, 1993, the Corporation had approximately
14,300 full-time and 1,600 part-time employees, of whom
approximately 6,300 were covered by collective bargaining
agreements. The Corporation considers its employee relations to
be good.
Item 2. PROPERTIES
The following is a list of the Corporation's principal
manufacturing properties. The Corporation owns each of these
properties.
UNITED STATES
Hershey, Pennsylvania - Confectionery Products (3
principal plants)
Oakdale, California - Confectionery Products
Stuarts Draft, Virginia - Confectionery Products
Winchester, Virginia - Pasta Products
CANADA
Smiths Falls, Ontario - Confectionery and Snack Nut
Products
In addition to the locations indicated above, the Corporation
owns or leases several other less significant properties used
for manufacturing confectionery and pasta products, sales,
distribution and administrative functions.
The Corporation's plants are efficient and well maintained.
These plants generally have adequate capacity and can
accommodate seasonal demands, changing product mixes and certain
additional growth. The largest plant is located in Hershey,
Pennsylvania. Many additions and improvements have been made to
this facility over the years and the plant's manufacturing
equipment includes equipment of the latest type and technology.
Item 3. LEGAL PROCEEDINGS
The Corporation has no material pending legal proceedings,
other than ordinary routine litigation incidental to its
business.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
Page 6
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Information concerning the principal United States trading
market for, market prices of and dividends on the Corporation's
Common Stock and Class B Common Stock, and the approximate
number of stockholders, may be found in the section "Market
Prices and Dividends" on pages 18 and 19 of the Corporation's
1993 Annual Report to Stockholders, which information is
incorporated herein by reference and reproduced herein as
Exhibit 13.
Item 6. SELECTED FINANCIAL DATA
The following information, for the five years ended December
31, 1993, found in the section "Eleven-Year Consolidated
Financial Summary" on page 40 of the Corporation's 1993 Annual
Report to Stockholders, is incorporated herein by reference and
reproduced herein as Exhibit 13: Net Sales; Income from
Continuing Operations before accounting changes; Income Per
Share from Continuing Operations before accounting changes
(excluding Notes g and h); Dividends Paid on Common Stock (and
related Per Share amounts); Dividends Paid on Class B Common
Stock (and related Per Share amounts); Long-term Portion of
Debt; and Total Assets.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The section "Management's Discussion and Analysis", found on
pages 16 through 19, 21, 23, and 25 of the Corporation's 1993
Annual Report to Stockholders, is incorporated herein by
reference and reproduced herein as Exhibit 13.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following audited consolidated financial statements of
the Corporation and its subsidiaries are found at the indicated
pages in the Corporation's 1993 Annual Report to Stockholders,
and such financial statements, along with the report of the
independent public accountants thereon, are incorporated herein
by reference and reproduced herein as Exhibit 13.
1. Consolidated Statements of Income for the years ended
December 31, 1993, 1992 and 1991. (Page 20)
2. Consolidated Statements of Cash Flows for the years ended
December 31, 1993, 1992 and 1991. (Page 22)
3. Consolidated Balance Sheets as of December 31, 1993 and
1992. (Page 24)
4. Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1993, 1992 and 1991. (Page 26)
5. Notes to Consolidated Financial Statements (Pages 27
through 37), including "Quarterly Data (Unaudited)."
(Page 37)
6. Report of Independent Public Accountants. (Page 38)
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
Page 7
PART III
Item 10.
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The names, ages, positions held with the Corporation, periods
of service as a director, principal occupations, business
experience, and other directorships of nominees for director of
the Corporation are set forth in the section "Election of
Directors" in the Corporation's Proxy Statement for its 1994
Annual Meeting of Stockholders. This information is
incorporated herein by reference.
Executive Officers of the Corporation as of March 1, 1994
Name Age Positions Held During the Last Five
Years
CORPORATE
K. L. Wolfe 55 Chairman of the Board and Chief
Executive Officer (1993); President and
Chief Operating Officer (1985)
R. A. Zimmerman(1) 61 Retired Chairman of the Board and Chief
Executive Officer (1993); Chairman of
the Board and Chief Executive Officer
(1985)
J. P. Viviano 55 President and Chief Operating Officer
(1993); President, Hershey Chocolate
U.S.A., a division of Hershey Foods
Corporation (1985)
W. F. Christ 53 Senior Vice President and Chief
Financial Officer (1994); President,
Hershey International, a division of
Hershey Foods Corporation (1988)
C. L. Duncan 54 Vice President, Research and
Development (1981)
T. C. Fitzgerald 54 Vice President and Treasurer (1990);
Treasurer (1985)
S. A. Lambly 53 Vice President, Human Resources (1989)
W. Lehr, Jr. 53 Vice President and Secretary (1994);
Senior Vice President and Secretary and
Associate General Counsel (Securities)
(1988)
R. M. Reese 44 Vice President and General Counsel
(1993); Assistant General Counsel
(1987)
J. B. Stiles 42 Vice President and Corporate Controller
(1990); Controller and Chief Accounting
Officer (1987)
B. L. Zoumas 51 Vice President, Science and Technology
(1992); Vice President, Technical,
Hershey Chocolate U.S.A. (1990); Vice
President, Science and Technology
(1981)
DIVISION
J. F. Carr 49 President, Hershey International
(1994); Vice President, Marketing,
Hershey Chocolate U.S.A. (1984)
M. F. Pasquale 46 President, Hershey Chocolate U.S.A.
(1994); Senior Vice President and Chief
Financial Officer (1988)
Page 8
Executive Officers of the Corporation
Name Age Positions Held During the Last Five
Years
R. W. Meyers 50 President, Hershey Canada Inc., a
subsidiary of Hershey Foods
Corporation (1990); Acting President,
Hershey Canada Inc. (1989)
C. M. Skinner 60 President, Hershey Pasta Group, a
division of Hershey Foods Corporation
(1984)
R. Brace 50 Vice President, Manufacturing, Hershey
Chocolate U.S.A. (1987)
F. Cerminara 45 Vice President, Commodities
Procurement, Hershey Chocolate U.S.A.
(1994); Vice President, Corporate
Development and Commodities (1988)
D. N. Eshleman(2) 39 General Manager, Hershey Grocery, a
division of Hershey Foods Corporation
(1994); Director, Marketing, Hershey
Chocolate U.S.A. (1988)
M. H. Holmes(2) 49 Vice President and General Manager,
Chocolate Confection, Hershey Chocolate
U.S.A. (1994); General Manager,
Grocery, Hershey Chocolate U.S.A.
(1989)
M. T. Matthews 47 Vice President, Sales, Hershey
Chocolate U.S.A. (1989)
(1) Mr. Zimmerman retired on December 31, 1993.
(2) Messrs. Eshleman's and Holmes' positions prior to 1994
were not executive officer positions.
There are no family relationships among any of the above named
officers of the Corporation.
Corporate Officers and Division Presidents are generally
elected each year at the organization meeting of the Board of
Directors following the Annual Meeting of Stockholders in April.
Item 11. EXECUTIVE COMPENSATION
Information concerning compensation of the five most highly
compensated executive officers of the Corporation individually,
and compensation of directors, is set forth in the sections
"1993 Executive Compensation" and "Compensation of Directors" in
the Corporation's Proxy Statement for its 1994 Annual Meeting of
Stockholders. This information is incorporated herein by
reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Information concerning ownership of the Corporation's voting
securities by certain beneficial owners, individual nominees for
directors, and by management, including the five most highly
compensated executive officers, is set forth in the section
"Voting Securities" in the Corporation's Proxy Statement for its
1994 Annual Meeting of Stockholders. This information is
incorporated herein by reference.
Page 9
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information concerning "Certain Relationships and Related
Transactions" is set forth in the section "Certain Transactions
and Relationships" in the Corporation's Proxy Statement for its
1994 Annual Meeting of Stockholders. This information is
incorporated herein by reference.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K
Item 14(a)(1): Financial Statements
The audited consolidated financial statements of the
Corporation and its subsidiaries and the Report of Independent
Public Accountants thereon, as required to be filed with this
report, are set forth in Item 8 of this report and are
incorporated therein by reference to specific pages of the
Corporation's 1993 Annual Report to Stockholders and reproduced
herein as Exhibit 13.
Item 14(a)(2): Financial Statement Schedules
The following consolidated financial statement schedules of
the Corporation and its subsidiaries for the years ended
December 31, 1993, 1992 and 1991 are filed herewith on the
indicated pages in response to Item 14(d):
1. Schedule V--Property, Plant and Equipment (Page 15)
2. Schedule VI--Accumulated Depreciation of Property, Plant
and Equipment (Page 16)
3. Schedule VIII--Valuation and Qualifying Accounts (Page 17)
4. Schedule IX--Short-Term Borrowings (Page 18)
Other schedules have been omitted as not applicable or
required, or because information required is shown in the
consolidated financial statements or notes thereto.
Financial statements of the parent corporation only are
omitted because the Corporation is primarily an operating
corporation and there are no significant restricted net assets
of consolidated and unconsolidated subsidiaries.
Item 14(a)(3): Exhibits
The following items are attached or incorporated by reference
in response to Item 14(c):
(3) Articles of Incorporation and By-laws
The Corporation's Restated Certificate of Incorporation,
as amended, is incorporated by reference from Exhibit
No. 3 to the Corporation's Quarterly Report on Form 10-Q
for the quarter ended April 3, 1988. The By-laws, as
amended on December 3, 1991, are incorporated by
reference from Exhibit No. 3 to the Corporation's Annual
Report on Form 10-K for the fiscal year ended December
31, 1991.
(4) Instruments defining the rights of security holders,
including indentures
The Corporation has issued certain long-term debt
instruments, no one class of which creates indebtedness
exceeding 10% of the total assets of the Corporation and
its subsidiaries on a consolidated basis. These
classes consist of the following:
a. 8.45% to 9.92% Medium-Term Notes due 1994-1998
b. 8.8% Debentures due 2021
Page 10
c. Other Obligations
The Corporation will furnish copies of the above debt
instruments to the Commission upon request.
In 1993 the Corporation called and redeemed its 9.5%
Sinking Fund Debentures due 2009 and its 9.125%
Sinking Fund Debentures due 2016.
(10) Material contracts
a. "After Eight, Kit Kat, and Rolo License Agreement"
(License Agreement) between Hershey Foods
Corporation and Rowntree Mackintosh Confectionery
Limited is incorporated by reference from Exhibit
No. 10(a) to the Corporation'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 No. 19 to the Corporation'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 No. 19 to the Corporation'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 Hershey Foods Corporation
and Cadbury Schweppes Inc. (now Cadbury Beverages
Inc.) dated August 25, 1988, is incorporated by
reference from Exhibit No. 2(a) to the Corporation's
Current Report on Form 8-K dated September 8, 1988.
c. Cadbury Trademark & Technology License Agreement
among Hershey Foods Corporation and Cadbury
Schweppes Inc. (now Cadbury Beverages Inc.) and
Cadbury Limited dated August 25, 1988, is
incorporated by reference from Exhibit No. 2(a) to
the Corporation's Current Report on Form 8-K dated
September 8, 1988.
Executive Compensation Plans:
d. The "1987 Key Employee Incentive Plan" (the "Plan")
is incorporated by reference from Exhibit No. 10(b)
to the Corporation's Annual Report on Form 10-K for
the year ended December 31, 1987. The Plan was
amended in 1991, and the amendment is incorporated
by reference from Exhibit No. 10 to the
Corporation's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1991. The Plan was further
amended in 1992, and the amendment is incorporated
by reference from Exhibit No. 19 to the
Corporation's Annual Report on Form 10-K for the
fiscal year ended December 31, 1991.
e. Hershey Foods Corporation's "Supplemental Executive
Retirement Plan" is incorporated by reference from
Exhibit No. 10(c) to the Corporation's Annual Report
on Form 10-K for the fiscal year ended December 31,
1982.
f. Hershey Foods Corporation's "Non-Management Director
Retirement Plan" is incorporated by reference from
Exhibit No. 19 to the Corporation's Quarterly Report
on Form 10-Q for the quarter ended March 29, 1992.
g. Hershey Foods Corporation's "Deferral Plan for Non-
Management Directors" is incorporated by reference
from Exhibit No. 10 to the Corporation's Annual
Report on Form 10-K for the fiscal year ended
December 31, 1992.
(12) Computation of ratio of earnings to fixed charges
statement
A computation of ratio of earnings to fixed charges for
the years ended December 31, 1993, 1992, 1991, 1990,
and 1989 is attached as Exhibit No. 12.
Page 11
(13) Annual report to security holders
The financial section of the Corporation's 1993 Annual
Report to Stockholders is attached as Exhibit No. 13.
(21) Subsidiaries of the Registrant
A list setting forth subsidiaries of the Corporation is
attached as Exhibit No. 21.
Item 14(b):Reports on Form 8-K
No reports on Form 8-K have been filed during the last
quarter of the period covered by this report.
Page 12
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Corporation has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
HERSHEY FOODS CORPORATION
(Registrant)
Date: March 7, 1994 By W. F. CHRIST
(W. F. Christ, Senior Vice
President and Chief
Financial Officer)
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the Corporation and in the capacities and
on the date indicated.
Signature Title Date
K. L. WOLFE Chief Executive Officer March 7, 1994
(K. L. Wolfe) and Director
W. F. CHRIST Chief Financial Officer March 7, 1994
(W. F. Christ)
J. B. STILES Chief Accounting Officer March 7, 1994
(J. B. Stiles)
J. P. VIVIANO Director March 7, 1994
(J. P. Viviano)
H. O. BEAVER, JR. Director March 7, 1994
(H. O. Beaver, Jr.)
T. C. GRAHAM Director March 7, 1994
(T. C. Graham)
B. GUITON Director March 7, 1994
(B. Guiton)
J. C. JAMISON Director March 7, 1994
(J. C. Jamison)
S. C. MOBLEY Director March 7, 1994
(S. C. Mobley)
F. I. NEFF Director March 7, 1994
(F. I. Neff)
Page 13
Signature Title Date
R. J. PERA Director March 7, 1994
(R. J. Pera)
J. M. PIETRUSKI Director March 7, 1994
(J. M. Pietruski)
V. A. SARNI Director March 7, 1994
(V. A. Sarni)
H. R. SHARBAUGH Director March 7, 1994
(H. R. Sharbaugh)
Page 14
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULES
To Hershey Foods Corporation:
We have audited, in accordance with generally accepted auditing
standards, the consolidated financial statements included in
Hershey Foods Corporation's 1993 annual report to stockholders
incorporated by reference in this Form 10-K, and have issued our
report thereon dated January 28, 1994. Our audit was made for
the purpose of forming an opinion on those statements taken as a
whole. The schedules listed in Item 14(a)(2) on page 9 are the
responsibility of the Corporation's management and are presented
for purposes of complying with the Securities and Exchange
Commission's rules and are not part of the basic financial
statements. These schedules have been subjected to the auditing
procedures applied in the audit of the basic financial
statements and, in our opinion, fairly state in all material
respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN & CO.
New York, N.Y.
January 28, 1994
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our reports dated January 28, 1994, included or
incorporated by reference in this Form 10-K for the year ended
December 31, 1993, into the Corporation's previously filed
Registration Statements on Forms S-8 or S-3 (File No. 33-12718,
File No. 33-35062, File No. 33-45431, File No. 33-45556 and File
No. 33-51089).
ARTHUR ANDERSEN & CO.
New York, N.Y.
March 7, 1994
Page 15
Schedule V
HERSHEY FOODS CORPORATION AND SUBSIDIARIES
SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT
For the Years Ended December 31, 1993, 1992 and 1991
(in thousands of dollars)
Balance at Balance at
Beginning Additions Retirements Other End of
Description of Period at Cost or Sales Changes Period
Year Ended December 31, 1993:
Land . . . . . . . . . . . . . . $ 40,163 $ 1,338 $ - $ 6,738 $ 48,239
Buildings . . . . . . . . . . . 385,545 23,061 (879) 22,472 430,199
Machinery and equipment. . . . . 1,371,729 187,222 (29,825) 34,200 1,563,326
Total Property, Plant and
Equipment. . . . . . . . . . $1,797,437 $ 211,621 $(30,704) $ 63,410(a) $ 2,041,764
Year Ended December 31, 1992:
Land . . . . . . . . . . . . . . $ 37,911 $ 2,983 $ - $ (731) $ 40,163
Buildings . . . . . . . . . . . 384,117 6,760 (3,117) (2,215) 385,545
Machinery and equipment. . . . . 1,159,268 240,052 (17,526) (10,065) 1,371,729
Total Property, Plant and
Equipment. . . . . . . . . . $1,581,296 $ 249,795 $(20,643) $ (13,011)(b) $ 1,797,437
Year Ended December 31, 1991:
Land . . . . . . . . . . . . . . $ 31,117 $ 23 $ (442) $ 7,213 $ 37,911
Buildings . . . . . . . . . . . 280,897 102,829 (3,896) 4,287 384,117
Machinery and equipment. . . . . 1,011,629 123,219 (10,841) 35,261 1,159,268
Total Property, Plant and
Equipment. . . . . . . . . . $1,323,643 $ 226,071 $(15,179) $ 46,761 (c) $ 1,581,296
(a) Represents primarily the acquisitions of Sperlari S.r.l. and Overspecht B.V. and the impact of translation of
foreign currency financial statements.
(b) Represents primarily the impact of translation of foreign currency financial statements.
(c) Represents primarily the acquisitions of Gubor Schokoladen GmbH and Gubor Schokoladenfabrik GmbH,
Hershey Mexico, S.A. de C.V., and certain assets of Dairymen, Inc.
Page 16
Schedule VI
HERSHEY FOODS CORPORATION AND SUBSIDIARIES
SCHEDULE VI - ACCUMULATED DEPRECIATION
OF PROPERTY, PLANT AND EQUIPMENT
For the Years Ended December 31, 1993, 1992 and 1991
(in thousands of dollars)
Balance at Charged to Balance at
Beginning Costs and Retirements Other End of
Description of Period Expenses or Sales Changes Period
Year Ended December 31, 1993:
Buildings . . . . . . . . . . . . . . . $ 74,417 $ 10,896 $ (262) $ (276) $ 84,775
Machinery and equipment. . . . . . . . . 427,031 89,228 (20,205) 31 496,085
Total Accumulated Depreciation . . . . . $ 501,448 $ 100,124 $(20,467) $ (245) $580,860
Year Ended December 31, 1992:
Buildings . . . . . . . . . . . . . . . $ 68,279 $ 9,048 $ (1,680) $(1,230) $ 74,417
Machinery and equipment. . . . . . . . . 367,351 75,386 (12,615) (3,091) 427,031
Total Accumulated Depreciation . . . . . $ 435,630 $ 84,434 $(14,295) $(4,321) $ 501,448
Year Ended December 31, 1991:
Buildings . . . . . . . . . . . . . . . $ 60,943 $ 7,955 $ (765) $ 146 $ 68,279
Machinery and equipment. . . . . . . . . 310,606 64,780 (8,291) 256 367,351
Total Accumulated Depreciation . . . . . $ 371,549 $ 72,735 $ (9,056) $ 402 $ 435,630
Depreciation and Amortization
The annual provisions for depreciation have been computed principally in accordance with the following ranges of rates:
Buildings and improvements. . . . . . . . . . . 3% to 7%
Machinery and equipment . . . . . . . . . . . . 7% to 33%
Page 17
Schedule VIII
HERSHEY FOODS CORPORATION AND SUBSIDIARIES
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended December 31, 1993, 1992 and 1991
1991
(in thousands of dollars)
Additions
Balance at Charged to Charged Deductions Balance
Beginning Costs and to Other from at End
Description of Period Expenses Accounts(a) Reserves of Period
Year Ended December 31, 1993:
Reserves deducted in the
balance sheet from the assets
to which they apply:
Accounts Receivable - Trade . . . . . . . . . . . . .$10,437 $3,371 $107 $(1,436) $12,479
Year Ended December 31, 1992:
Reserves deducted in the
balance sheet from the assets
to which they apply:
Accounts Receivable - Trade . . . . . . . . . . . . . $9,476 $4,812 $113 $(3,964) $10,437
Year Ended December 31, 1991:
Reserves deducted in the
balance sheet from the assets
to which they apply:
Accounts Receivable - Trade . . . . . . . . . . . . . $9,553 $1,477 $136 $(1,690) $ 9,476
(a) Includes recoveries of amounts previously written off.
Page 18
Schedule IX
HERSHEY FOODS CORPORATION AND SUBSIDIARIES
SCHEDULE IX - SHORT-TERM BORROWINGS
For the Years Ended December 31, 1993, 1992 and 1991
(in thousands of dollars)
Weighted
Maximum Average Average
Weighted Amount Amount Interest
Balance Average Outstanding Outstanding Rate
at End Interest During the During the During the
Category of Short-Term Borrowings of Period Rate Period Period (a) Period (b)
Year Ended December 31, 1993:
Domestic:
Commercial paper . . . . . . . . . . . . . $299,366 3.3% $394,321 $300,259 3.3%
Bank borrowings. . . . . . . . . . . . . . - - 68,464 5,811 3.3
Foreign borrowings . . . . . . . . . . . . . 37,920 7.6 41,604 20,361 8.7
All categories . . . . . . . . . . . . . . $337,286 3.8 $418,935 $326,431 3.6%
Year Ended December 31, 1992:
Domestic:
Commercial paper . . . . . . . . . . . . . $250,895 3.4% $351,216 $231,998 3.6%
Bank borrowings. . . . . . . . . . . . . . - - 82,000 35,399 4.7
Foreign borrowings . . . . . . . . . . . . . 8,150 8.7 17,594 10,754 11.7
All categories . . . . . . . . . . . . . . $259,045 3.7% $443,144 $278,151 4.1%
Year Ended December 31, 1991:
Domestic:
Commercial paper . . . . . . . . . . . . . $ 53,452 5.1% $259,473 $113,268 6.2%
Bank borrowings. . . . . . . . . . . . . . - - 32,000 1,907 6.4
Foreign borrowings . . . . . . . . . . . . . 4,168 8.9 9,055 3,715 7.9
All categories . . . . . . . . . . . . . . $ 57,620 5.4% $263,580 $118,890 6.2%
(a) Average borrowings represent daily averages for domestic borrowings and
month-end averages for foreign borrowings.
(b) The weighted average interest rate was computed by dividing interest
expense by average short-term borrowings for each category.
Page 19
HERSHEY FOODS CORPORATION ANNUAL REPORT ON FORM 10-K
Index to Exhibits
Exhibit No.
12 - Computation of ratio of earnings to
fixed charges statement
13 - Financial section of 1993 Annual Report
to Stockholders
21 - Subsidiaries of the Registrant
EXHIBIT 12
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
For the Years Ended December 31, 1993, 1992, 1991, 1990, and 1989
(in thousands of dollars except for ratios)
(Unaudited)
1993 1992 1991 1990 1989
Earnings:
Income from continuing operations before
income taxes and accounting changes . . . . . . . . . .$510,875(a) $400,988 $363,457 $361,518(c) $289,922
Add (Deduct):
Interest on indebtedness . . . . . . . . . . . . . . . . 30,224 29,708 29,269 26,319 23,508
Portion of rents representative of the interest factor(b) 8,175 7,987 7,785 6,939 6,678
Amortization of debt expense . . . . . . . . . . . . . . 84 165 284 270 429
Amortization of capitalized interest . . . . . . . . . . 2,684 1,988 1,390 1,147 679
Adjustment for equity companies(c) . . . . . . . . . . . - 628 262 (1,258) (3,558)
Adjustment for majority-owned subsidiary(d) . . . . . . - 17 (116) (397) (48)
Earnings as adjusted. . . . . . . . . . . . . . . .$552,042 $441,481 $402,331 $394,538 $317,610
Fixed Charges:
Interest on indebtedness. . . . . . . . . . . . . . . . . . . $30,224 $29,708 $29,269 $26,319 $23,508
Portion of rents representative of the interest factor(b) . . 8,175 7,987 7,785 6,939 6,678
Amortization of debt expense. . . . . . . . . . . . . . . . . 84 165 284 270 429
Capitalized interest. . . . . . . . . . . . . . . . . . . . . 4,646 12,055 10,386 5,875 6,594
Adjustment for 50% equity company(e). . . . . . . . . . . . . - - 21 47 88
Total fixed charges. . . . . . . . . . . . . . . . . . . $43,129 $49,915 $47,745 $39,450 $37,297
Ratio of earnings to fixed charges . . . . . . . . . . . . . . . 12.80 8.84 8.43 10.00 8.52
NOTES:
(a) Includes a gain of $80.6 million on the sale of the Corporation's 18.6% investment interest in
Freia Marabou a.s.
(b) Portion of rents representative of the interest factor consists of one-third of rental expense for
operating leases.
(c) Adjustment for equity companies includes the eliminations from income of both undistributed
earnings and losses of companies in which at least 20% but less than 50% equity is owned. In
May 1990, the Corporation sold its equity interest in AB Marabou resulting in a non-recurring
gain of $60.5 million. In April 1992, the Corporation sold its equity interest in its Brazilian joint
venture.
(d) In December 1992, the Corporation purchased the remaining shares of Hershey Japan. Prior to
the acquisition, the Corporation owned 51% of Hershey Japan.
(e) In October 1991, the Corporation purchased the shares of Nacional de Dulces, S.A. de C.V.,
subsequently renamed Hershey Mexico, S.A. de C.V. (Hershey Mexico), owned by its joint
venture partner, Grupo Carso, S.A. de C.V. Prior to the acquisition, the Corporation owned
50% of the outstanding stock of Hershey Mexico.
Page 1
FINANCIAL HIGHLIGHTS
(in thousands of dollars except shares and per share amounts)
Percent
1993 1992 Change
Net sales $3,488,249 $3,219,805 +8
Income before cumulative effect of
accounting changes 297,233(a) 242,598 +23
Net cumulative effect of accounting
changes (103,908) - -
Net income 193,325 242,598 -20
Income per share(b):
Before accounting changes 3.31(a) 2.69 +23
Net cumulative effect of accounting
changes (1.16) - -
Net income 2.15 2.69 -20
Cash dividends paid per share:
Common Stock 1.140 1.030 +11
Class B Common Stock 1.035 .935 +11
Cash dividends paid 100,499 91,444 +10
Capital additions 211,621 249,795 -15
Stockholders' equity at year-end 1,412,344 1,465,279 -4
Net book value per share at year-end 16.12 16.25 -1
Price per share of Common Stock at
year-end 49 47 +4
Outstanding shares at year-end(b) 87,613,236 90,186,336 -3
(a) Income before cumulative effect of accounting changes and
income per share before accounting changes for 1993
included an after-tax gain of $40.6 million and $.45 per
share, respectively, on the sale of the Corporation's
investment interest in Freia Marabou a.s.
(b) Income per share has been computed based on weighted
average outstanding shares of 89,757,135 for 1993 and
90,186,336 for 1992. Excluding treasury stock,
outstanding shares as of December 31, 1993, consisted of
72,359,957 shares of Common Stock and 15,253,279 shares of
Class B Common Stock.
The following information was presented in a graph in the
Corporation's printed Annual Report to stockholders:
(dollars in millions) 1989 1990 1991 1992 1993
Net Sales $2,421 $2,716 $2,899 $3,220 $3,488
The following information was presented in a graph in the
Corporation's printed Annual Report to stockholders:
(dollars in millions) 1989 1990 1991 1992 1993
Income Before Accounting Changes
and Non-recurring Gains $ 171 $ 196 $ 220 $ 243 $ 256
Gain on Business Restructuring, Net - 20 - - -
Gain on Sale of Investment Interest - - - - 41
Income Before Cumulative
Effect of Accounting Changes $ 171 $ 216 $ 220 $ 243 $ 297
Page 16
HERSHEY FOODS CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS - FINANCIAL REVIEW
Summary of Consolidated Operating Results
The Corporation achieved increased sales in 1993 and 1992. Net
sales during this two-year period increased at a compound annual
rate of 10%, primarily reflecting volume growth from new product
introductions, existing confectionery and pasta products,
international acquisitions, and modest confectionery and pasta
price increases. Consolidated net sales during the last half of
1993 were heavily influenced by volume growth from new domestic
confectionery products, acquisitions and promotional activities.
These factors more than offset the effects of sluggish demand
for existing brands in most of the Corporation's domestic and
international markets which began late in the first quarter of
1993 and has continued to sporadically affect sales and income
into early 1994.
Effective January 1, 1993, the Corporation adopted Statements of
Financial Accounting Standards No. 106 "Employers' Accounting
for Post-retirement Benefits Other Than Pensions" (FAS No. 106)
and No. 109 "Accounting for Income Taxes" (FAS No. 109) by means
of catch-up adjustments. The net charge associated with these
changes in accounting had the effect of decreasing net income by
approximately $103.9 million, or $1.16 per share.
In March 1993, the Corporation recorded a pre-tax gain of $80.6
million on the sale of its 18.6% investment interest in Freia
Marabou a.s (Freia) which had the effect of increasing net
income by $40.6 million.
In March 1992, Hershey Chocolate U.S.A. increased the wholesale
price of its line of packaged candy products by approximately
5%, the first increase since 1984. This product line
represented approximately 15% of the Corporation's annual sales
in 1992. The price increase was intended to cover the rising
costs of certain raw materials, petroleum-based packaging
materials, fuel and employee benefits.
Income, excluding the 1993 catch-up adjustments for accounting
changes and the impact of the after-tax gain on the sale of the
Freia investment, increased at a compound annual rate of 8%
during the two-year period. This increase was a result of the
growth in sales and an improved gross profit margin, partially
offset by higher selling, marketing and administrative expenses
and an increase in the effective income tax rate.
Summary of Financial Position and Liquidity
The Corporation's financial position remained strong during
1993. The capitalization ratio (total short-term and long-term
debt as a percent of stockholders' equity, short-term and
long-term debt) was 27% as of December 31, 1993 and 1992. The
ratio of current assets to current liabilities was 1.1:1 as of
December 31, 1993 and 1.3:1 as of December 31, 1992. The
decrease in the current ratio reflects the sale of the
Corporation's $179.1 million investment in Freia, and short-term
borrowings for acquisitions and a share repurchase program,
partially offset by the early repayment of long-term debt, which
was classified as current as of December 31, 1992.
Historically, the Corporation's major source of financing has
been cash generated from operations. Generally, seasonal
working capital needs peak during the summer months and have
been met by issuing commercial paper.
During the three-year period ended December 31, 1993, the
Corporation's cash and cash equivalents decreased by
$10.7 million. Total debt, including debt assumed, increased by
$218.6 million during this same period reflecting the financing
needs for several business acquisitions and a share repurchase
program.
The Corporation anticipates that capital expenditures will be in
the range of $200 million per annum during the next several
years as a result of capacity expansion to support new products
and continued modernization of existing facilities. As of
December 31, 1993, the Corporation's principal capital
commitments included manufacturing capacity expansion and
modernization.
The following information was presented in a graph in the
Corporation's printed Annual Report to stockholders:
(dollars in millions) 1989 1990 1991 1992 1993
Capital Additions $ 162 $ 179 $ 226 $ 250 $ 212
Gross proceeds from the sale of the Corporation's Freia
investment interest in the amount of $259.7 million were
received in April 1993 and a portion thereof was used for the
early repayment of long-term debt.
Page 17
In the second quarter of 1993, the Corporation's Board of
Directors approved a share repurchase program to acquire from
time to time through open market or privately negotiated
transactions up to $200 million of its Common Stock.
During 1993, a total of 2,573,100 shares of Common Stock were
acquired under the share repurchase program, of which 264,000
shares were retired and the remaining 2,309,100 shares were held
as treasury stock as of December 31, 1993.
As of December 31, 1993, $100 million of debt securities
remained available for issuance under a Form S-3 Registration
Statement which was declared effective in June 1990. In
November 1993, the Corporation filed another Form S-3
Registration Statement under which it may offer, on a delayed or
continuous basis, up to $400 million of additional debt
securities. Proceeds from any offering of the $500 million of
debt securities available under these shelf registrations may be
used to reduce existing commercial paper borrowings, finance
capital additions, and fund the share repurchase program and
future business acquisitions.
In 1991, the Corporation established an employee stock ownership
trust (ESOP) to serve as the primary vehicle for the
Corporation's contributions to its existing employee savings and
stock investment plan for participating domestic salaried and
hourly employees. The ESOP was funded by a 7.75% loan of $47.9
million from the Corporation. The proceeds from this loan were
used to purchase 1,193,816 shares of the Corporation's Common
Stock which it had previously acquired through open market
purchases.
Acquisitions and Divestiture
Operating results during the period were impacted by the
following:
- October 1993 - Completed the purchase of the
outstanding shares of Overspecht B.V. (OZF Jamin) for
approximately $20.2 million, plus the assumption of
approximately $13.4 million in debt. OZF Jamin manufactures
chocolate and non-chocolate confectionery products, cookies,
biscuits and ice cream for distribution primarily to
customers in the Netherlands and Belgium.
- September 1993 - Completed the acquisition of the Italian
confectionery business of Heinz Italia S.p.A. (Sperlari) for
approximately $130.0 million. Sperlari is a leader in the
Italian non-chocolate confectionery market and manufactures
and distributes a wide range of confectionery products,
including sugar candies and traditional products for special
occasions such as nougat and gift boxes. Products are
marketed under the Sperlari, Dondi, Scaramellini and other
brands.
- March 1993 - Acquired certain assets of the Cleveland area
Ideal Macaroni and Weiss Noodle companies (Ideal/Mrs. Weiss)
for approximately $14.6 million.
- April 1992 - Completed the sale of Hershey do Brasil
Participacoes Ltda., a holding company which owned a 41.7%
equity interest in Petybon S.A., to the Bunge & Born Group for
approximately $7.0 million. Petybon S.A., located in Brazil,
is a producer of pasta, biscuits and margarine products.
- October 1991 - Purchased the shares of Nacional de Dulces,
S.A. de C.V. (subsequently renamed Hershey Mexico, S.A. de C.V.)
owned by its joint venture partner, Grupo Carso, S.A. de C.V.
Prior to this transaction, the Corporation owned 50% of the
stock. Hershey Mexico produces, imports and markets chocolate
products for the Mexican market under the HERSHEY'S brand name.
- May 1991 - Acquired from Dairymen, Inc. certain assets of its
ultra-high temperature fluid milk-processing business
(aseptically-packaged drink business), including a Savannah,
Georgia manufacturing facility.
- May 1991 - Completed the acquisition of the Gubor Schokoladen
GmbH and Gubor Schokoladenfabrik GmbH (Gubor) chocolate business
from H. Bahlsens Keksfabrik KG. Gubor, which operates two
manufacturing plants in Germany, produces and markets high-
quality assorted pralines and seasonal chocolates under the
GUBOR brand name. The transaction was effective as of
January 1, 1991.
The following information was presented in a graph in the
Corporation's printed Annual Report to stockholders:
Contribution to Net Sales of
Businesses Acquired
(dollars in millions) 1991 1992 1993
Existing Businesses $2,790 $3,068 $3,262
Acquired Businesses 109 152 226
Total Net Sales $2,899 $3,220 $3,488
A further discussion of these acquisitions and divestiture can
be found in Note 2 to the consolidated financial statements.
Page 18
Other Items
The Corporation's net sales, net income and cash flows are
affected by business acquisitions, new product introductions,
the timing of promotional activities and price increases. These
factors generally benefited financial results in 1993. However,
sluggish demand for existing brands and an increasingly seasonal
sales bias resulted in a decline in net sales and net income
in the second quarter of 1993 and, to the extent these conditions
continue, has the potential to similarly impact financial
results as the Corporation enters 1994.
The most significant raw material used in the production of the
Corporation's chocolate and confectionery products is cocoa
beans. Generally, the Corporation has been able to offset the
effects of increases in the cost of this raw material through
selling price increases or reductions in product weights.
Conversely, declines in the cost of cocoa beans have served as a
source of funds to maintain selling price stability, enhance
consumer value through increases in product weights, respond to
competitive activity, develop new products and markets, and
offset rising costs of other raw materials and expenses.
The cost of cocoa beans and the prices for the related commodity
futures contracts historically have been subject to wide
fluctuations attributable to a variety of factors, including the
effect of weather on crop yield, other imbalances between supply
and demand, currency exchange rates and speculative influences.
During the past decade, the market prices of cocoa beans and
cocoa futures trended lower as a result of the worldwide
cocoa bean crop exceeding demand during most years. However,
cocoa crops for the most recent three years fell somewhat short
of demand resulting in supply deficits.
Prices in 1993 were relatively stable because of the excess
stocks produced earlier in the decade, but may begin to trend
upward in 1994 as stocks decline further. The Corporation's
costs during 1994 will not necessarily reflect market price
fluctuations because of its forward purchasing practices,
premiums and discounts reflective of relative values, varying
delivery times, and supply and demand for specific varieties and
grades of cocoa beans.
The major raw material used in the manufacture of pasta products
is semolina milled from durum wheat. The Corporation purchases
semolina from commercial millers and is also engaged in custom
milling arrangements to obtain sufficient quantities of high-
quality semolina. A decrease in plantings and adverse weather
conditions in the Midwest reduced the quantity and quality of
the 1993 durum wheat crop, resulting in substantial cost
increases. Supplies are expected to remain tight and prices may
continue at the recent high levels pending the outcome of the
new crop harvest in the fall of 1994.
Capital Structure
The Corporation has two classes of stock outstanding, Common
Stock and Class B Common Stock (Class B Stock). The Common
Stock and the Class B Stock generally vote together without
regard to class on matters submitted to stockholders, including
the election of directors, with the Common Stock having one vote
per share and the Class B Stock having ten votes per share.
However, the Common Stock, voting separately as a class, is
entitled to elect one-sixth of the Board of Directors. With
respect to dividend rights, the Common Stock is entitled to cash
dividends 10% higher than those declared and paid on the Class B
Stock.
The Corporation's Common Stock is listed on the New York Stock
Exchange (NYSE), which has a rule generally prohibiting dual
classes of common stock. The Corporation's dual class structure
has been grandfathered under this rule. In February 1994, the
NYSE released for public comment a new uniform voting rights
policy proposed by the Chairman of the Securities and Exchange
Commission and agreed to by the American Stock Exchange and the
National Association of Securities Dealers. The policy would
provide that the voting rights of existing holders of
publicly traded common stock cannot be disparately reduced or
restricted through any corporate action or issuance. Under the
proposed policy the Corporation's and other listed companies'
existing dual class structures would be grandfathered.
Market Prices and Dividends
The following information was presented in a graph in the
Corporation's printed Annual Report to stockholders:
1989 1990 1991 1992 1993
Dividends Paid Per Share
of Common Stock
(dollars)
Regular $.74 $.84 $.94 $1.03 $1.14
Special - .15 - - -
Total Dividends $.74 $.99 $.94 $1.03 $1.14
Cash dividends paid on the Corporation's Common Stock and Class
B Stock were $100.5 million in 1993 and $91.4 million in 1992.
The annual dividend rate on the Common Stock is $1.20 per share,
an increase of 11% over the 1992 rate of $1.08 per share. The
1993 dividend represented the 19th consecutive year of Common
Stock dividend increases.
Page 19
On February 8, 1994, the Corporation's Board of Directors
declared a quarterly dividend of $.30 per share of Common Stock
payable on March 15, 1994, to stockholders of record as of
February 25, 1994. It is the Corporation's 257th consecutive
Common Stock dividend. A quarterly dividend of $.2725 per share
of Class B Stock was also declared.
Hershey Foods Corporation's Common Stock is listed and traded
principally on the NYSE under the ticker symbol "HSY."
Approximately 29.3 million shares of the Corporation's Common
Stock were traded during 1993.
The closing price of the Common Stock on December 31, 1993 was $49.
The Class B Stock is not publicly traded. There were 32,859 stockholders
of record of the Common Stock and the Class B Stock as of December 31, 1993.
The following table shows the dividends paid per share of Common
Stock and Class B Stock and the price range of the Common Stock
for each quarter of the past two years:
Dividends Paid Common Stock
Per Share Price Range*
Common Class B
Stock Stock High Low
1993
1st Quarter $ .270 $ .2450 $55-7/8 $46-1/2
2nd Quarter .270 .2450 54-5/8 45-3/4
3rd Quarter .300 .2725 51-7/8 43-1/2
4th Quarter .300 .2725 54-3/4 48-5/8
Total $ 1.140 $1.0350
1992
1st Quarter $ .245 $ .2225 $45-1/4 $39-7/8
2nd Quarter .245 .2225 42-1/8 38-1/4
3rd Quarter .270 .2450 45-1/2 41-5/8
4th Quarter .270 .2450 48-3/8 43-1/2
Total $ 1.030 $ .9350
* NYSE-Composite Quotations for Common Stock by calendar quarter.
Operating Return on Average Stockholders' Equity
The following information was presented in a graph in the
Corporation's printed Annual Report to stockholders:
(percent) 1989 1990 1991 1992 1993
Operating Return on Average
Stockholders' Equity from
Continuing Operations 16.1 16.6 17.0 17.3 17.8
Gain on Business Restructuring, Net - 1.7 - - -
Catch-up adjustment for Accounting
Changes and Gain on Sale of
Investment Interest - - - - (4.4)
Operating Return on Average
Stockholders' Equity 16.1 18.3 17.0 17.3 13.4
The Corporation's operating return on average stockholders'
equity was 17.8% in 1993. Over the most recent five-year
period, the return has ranged from 16.1% in 1989 to 17.8% in
1993. For the purpose of calculating operating return on average
stockholders' equity, earnings is defined as net income,
excluding the after-tax gain on business restructuring
in 1990, and both the catch-up adjustment for accounting changes
and the after-tax gain on the sale of the investment in Freia in
1993.
Operating Return on Average Invested Capital
The following information was presented in a graph in the
Corporation's printed Annual Report to stockholders:
(percent) 1989 1990 1991 1992 1993
Operating Return on Average Invested
Capital from Continuing Operations 13.2 13.4 13.8 14.4 15.0
Gain on Business Restructuring, Net - 1.2 - - -
Catch-up Adjustment for Accounting
Changes and Gain on Sale of
Investment Interest - - - - (3.5)
Operating Return on Average
Invested Capital 13.2 14.6 13.8 14.4 11.5
The Corporation's operating return on average invested capital
was 15.0% in 1993. Over the most recent five-year period, the
return has ranged from 13.2% in 1989 to 15.0% in 1993. Average
invested capital consists of the annual average of beginning and
ending balances of long-term debt, deferred income taxes and
stockholders' equity. For the purpose of calculating operating
return on average invested capital, earnings is defined as net
income, excluding the after-tax gains on business restructuring
and the sale of the investment in Freia, the catch-up adjustment
for accounting changes, and the after-tax effect of interest on
long-term debt.
Page 20
HERSHEY FOODS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(in thousands of dollars except per share amounts)
For the years ended December 31, 1993 1992 1991
Net Sales $3,488,249 $3,219,805 $2,899,165
Costs and Expenses:
Cost of sales 1,995,502 1,833,388 1,694,404
Selling, marketing and
administrative 1,035,519 958,189 814,459
Total costs and expenses 3,031,021 2,791,577 2,508,863
Gain on Sale of Investment
Interest 80,642 - -
Income before Interest, Income
Taxes and Accounting Changes 537,870 428,228 390,302
Interest expense, net 26,995 27,240 26,845
Income before Income Taxes
and Accounting Changes 510,875 400,988 363,457
Provision for income taxes 213,642 158,390 143,929
Income before Cumulative Effect
of Accounting Changes 297,233 242,598 219,528
Net cumulative effect of
accounting changes (103,908) - -
Net Income $ 193,325 $ 242,598 $ 219,528
Income Per Share:
Before accounting changes $ 3.31 $ 2.69 $ 2.43
Net cumulative effect of
accounting changes (1.16) - -
Net income $ 2.15 $ 2.69 $ 2.43
Cash Dividends Paid Per Share:
Common Stock $ 1.140 $ 1.030 $ .940
Class B Common Stock 1.035 .935 .850
The notes to consolidated financial statements are an integral part of
these statements.
Page 21
HERSHEY FOODS CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS - RESULTS OF OPERATIONS
Net Sales
Net sales rose $268.4 million or 8% in 1993 and $320.6 million
or 11% in 1992. The increase in 1993 primarily reflected volume
growth from new products and business acquisitions, and pasta
selling price increases, which more than offset the effects of
sluggish demand for existing brands in most of the Corporation's
domestic and international markets. The increase in 1992 was
due to volume growth from existing brands, sales of new
products, confectionery price increases and the consolidation
of Hershey Mexico, the remaining shares of which were acquired
in late 1991.
Costs and Expenses
Cost of sales as a percent of net sales decreased from 58.4% in
1991 to 56.9% in 1992 but increased to 57.2% in 1993. The
decrease in gross margin in 1993 reflected higher manufacturing
costs related to new products, incremental manufacturing,
shipping and depreciation costs associated with the completion
and start-up of new manufacturing and distribution facilities,
and recurring expenses associated with a change in accounting
for post-retirement benefits. These higher costs and expenses
were partially offset by lower costs for certain major raw
materials and pasta price increases. The increase in gross
margin in 1992 was primarily due to lower costs for certain
major raw materials, confectionery price increases, and
manufacturing efficiencies.
Selling, marketing and administrative costs increased in 1993
primarily as a result of higher promotion expenses, associated
with the sales volume growth and the introduction of new
products, and incremental selling expenses related to business
acquisitions. Selling, marketing and administrative costs
increased in 1992, primarily as a result of higher promotion and
advertising expenses related to sales volume growth and the
introduction of new products.
Gain on Sale of Investment Interest
In March 1993, the Corporation sold its 18.6% investment
interest in Freia to Kraft General Foods Holdings Norway, Inc.
and recorded a pre-tax gain of $80.6 million. This gain had the
effect of increasing net income by $40.6 million.
Interest Expense, Net
Net interest expense decreased by $.2 million in 1993 as lower
long-term interest expense, reflecting lower debt balances, and
higher interest income more than offset a decrease in
capitalized interest. Interest income increased due in part to
interim investments of a portion of the proceeds from the sale
of the investment in Freia. Capitalized interest was below the
prior year reflecting the completion of major long-term
construction projects in late 1992 and early 1993 and a
corresponding reduction in expenditures qualifying for interest
capitalization in 1993.
Net interest expense was $.4 million higher in 1992 than 1991,
due to higher levels of short-term borrowings, offset partially
by lower short-term interest rates, lower long-term interest
expense, and an increase in capitalized interest.
The increase in short-term debt was a result of the
Corporation's May 1992 purchase of its 18.6% investment interest
in Freia and interim borrowings to finance capital additions.
Long-term interest expense was below 1991 reflecting repayments
of long-term debt. A cumulative increase in capital
expenditures resulted in significantly higher capitalized
interest in 1992 versus 1991.
Provision for Income Taxes
The Corporation's effective income tax rate was 41.8%, 39.5% and
39.6% in 1993, 1992 and 1991, respectively. The increase in
1993 was largely a result of the relatively high income taxes
associated with the gain on the sale of the Corporation's Freia
investment and an increase in the Federal statutory income tax
rate as provided for in the Revenue Reconciliation Act of 1993,
which reduced net income by $5.5 million. The effective income
tax rate was lower in 1992 than in 1991 as a tax benefit
associated with the sale of the Corporation's equity interest in
its Brazilian joint venture more than offset the full-year
impact in 1992 of a mid-1991 increase in the Pennsylvania
corporate income tax rate.
Net Cumulative Effect of Accounting Changes
Effective January 1, 1993, the Corporation adopted FAS No. 106
and FAS No. 109 by means of catch-up adjustments. These changes
in accounting had the effect of decreasing net income by
approximately $103.9 million or $1.16 per share.
Net Income
Net income decreased by 20% in 1993. Excluding the impact of
the after-tax gain on the 1993 sale of the Freia investment and
the 1993 catch-up adjustments for accounting changes, income increased
$14.1 million or 6% in 1993. Net income increased $23.1 million
or 11% in 1992. Income as a percent of net sales, after
excluding the 1993 net cumulative effect of accounting changes
and the after-tax gain on the sale of the investment interest in
Freia, was 7.4% in 1993, 7.5% in 1992, and 7.6% in 1991.
Page 22
HERSHEY FOODS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of dollars)
For the years ended December 31, 1993 1992 1991
Cash Flows Provided from (Used by) Operating Activities
Net income $ 193,325 $ 242,598 $ 219,528
Adjustments to reconcile net income
to net cash provided
from operations:
Net cumulative effect of accounting
changes 103,908 - -
Depreciation and amortization 113,064 97,087 85,413
Deferred income taxes 11,047 21,404 20,654
Gain on sale of investment interest (80,642) - -
Changes in assets and liabilities,
net of effects from business
acquisitions:
Accounts receivable -- trade (100,957) (13,841) (6,404)
Inventories 32,347 (20,262) (43,949)
Accounts payable (12,809) (10,715) 4,070
Other assets and liabilities 110,259 (20,707) 94,270
Other, net 9,399 649 (26,242)
Net Cash Provided from Operating Activities 378,941 296,213 347,340
Cash Flows Provided from (Used by) Investing Activities
Capital additions (211,621) (249,795) (226,071)
Business acquisitions (164,787) - (44,108)
Sale (purchase) of investment interest 259,718 (179,076) -
Other, net (1,947) 6,581 (1,510)
Net Cash (Used by) Investing Activities (118,637) (422,290) (271,689)
Cash Flows Provided from (Used by) Financing Activities
Net increase in short-term debt 67,485 201,425 56,489
Long-term borrowings 1,130 1,259 23,620
Repayment of long-term debt (104,792) (32,173) (27,861)
Loan to ESOP - - (47,902)
Proceeds from sale of Common Stock to ESOP - - 47,902
Cash dividends paid (100,499) (91,444) (83,401)
Repurchase of Common Stock (131,783) - -
Net Cash Provided from (Used by)
Financing Activities (268,459) 79,067 (31,153)
Increase (Decrease) in Cash and
Cash Equivalents (8,155) (47,010) 44,498
Cash and Cash Equivalents as of January 1 24,114 71,124 26,626
Cash and Cash Equivalents as of December 31 $ 15,959 $ 24,114 $ 71,124
Interest Paid $ 32,073 $ 29,515 $ 24,468
Income Taxes Paid 171,586 151,490 119,038
The notes to consolidated financial statements are an integral part of
these statements.
Page 23
HERSHEY FOODS CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS - CASH FLOWS
Summary
Over the past three years, cash provided from operating
activities and the net cash from the purchase and subsequent
sale of the Corporation's investment interest in Freia exceeded
cash requirements for capital additions and dividend payments by
$140.3 million. Total debt, including debt assumed, increased
during the period by $218.6 million, reflecting the financing
needs for several business acquisitions and a share repurchase
program. Cash and cash equivalents decreased by $10.7 million
during the period.
The Corporation's income and, consequently, cash provided from
operations during the year is affected by seasonal sales
patterns, the timing of new product introductions, business
acquisitions and price increases. Chocolate, confectionery and
grocery seasonal and holiday-related sales have typically been
highest during the third and fourth quarters of the year,
representing the principal seasonal effect. Generally, the
Corporation's seasonal working capital needs peak during the
summer months and have been met by issuing commercial paper.
Operating Activities
During the past three years, depreciation and amortization have
increased significantly as a result of continuous investment in
capital additions and business acquisitions. Cash requirements
for accounts receivable and inventories have tended to fluctuate
during the three-year period based on sales during December and
inventory management practices. The change in cash required for
or provided from other assets and liabilities between the years
was primarily related to commodities transactions, the timing of
payments for accrued liabilities, including income taxes, and a
corporate-owned life insurance program.
Investing Activities
Investing activities included capital additions, several
business acquisitions, and the purchase and subsequent sale of
an 18.6% investment interest in Freia in 1992 and 1993,
respectively. The income taxes paid in 1993 on the Freia gain
were included in operating activities. Capital additions during
the past three years included the purchase of manufacturing
equipment, construction of new manufacturing and office
facilities and expansion of existing facilities. Businesses
acquired during the past three years included OZF Jamin,
Sperlari and Ideal/Mrs. Weiss in 1993, and Gubor, the
aseptically-packaged drink business and Hershey Mexico in 1991.
Cash used for business acquisitions represented the purchase
price paid and consisted of the current assets, property, plant
and equipment, and intangibles acquired, net of liabilities
assumed.
Financing Activities
Financing activities included debt borrowings and repayments,
payment of dividends, the repurchase of Common Stock in 1993,
and ESOP transactions in 1991. During the past three years,
short-term borrowings in the form of commercial paper or bank
borrowings were used to fund seasonal working capital
requirements, business acquisitions, the purchase of the Freia
investment interest and a share repurchase program. A portion
of the proceeds received from the sale of the Freia investment
was used to repay long-term debt in 1993. In February 1991, the
Corporation issued $100 million of Debentures under its Form S-3
Registration Statement which was declared effective in June
1990. A portion of the proceeds from issuance of the Debentures
was used to repay $76.7 million of domestic commercial paper
borrowings which were classified as long-term debt as of
December 31, 1990.
During the second quarter of 1993, the Corporation's Board of
Directors approved a share repurchase program to acquire from
time to time through open market or privately negotiated
transactions up to $200 million of Common Stock. During 1993, a
total of 2,573,100 shares were repurchased at an average price
of $51 per share.
During 1991, the Corporation established an ESOP to serve as the
primary vehicle for the Corporation's contributions to its
existing employee savings and stock investment plan for
participating domestic salaried and hourly employees. The ESOP
was funded by a 7.75% loan of $47.9 million from the
Corporation. The proceeds from this loan were used to purchase,
at a market price of $40-1/8 per share, 1,193,816 shares of the
Corporation's Common Stock which it had previously acquired
through open market purchases.
Page 24
HERSHEY FOODS CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands of dollars)
December 31, 1993 1992
ASSETS
Current Assets:
Cash and cash equivalents $ 15,959 $ 24,114
Accounts receivable--trade 294,974 173,646
Inventories 453,442 457,179
Deferred income taxes 85,548 46,451
Prepaid expenses and other 39,073 59,515
Investment interest - 179,076
Total current assets 888,996 939,981
Property, Plant and Equipment, Net 1,460,904 1,295,989
Intangibles Resulting from Business
Acquisitions 473,408 399,768
Other Assets 31,783 37,171
Total assets $2,855,091 $2,672,909
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 125,658 $ 127,175
Accrued liabilities 301,989 240,816
Accrued income taxes 35,603 5,682
Short-term debt 337,286 259,045
Current portion of long-term debt 13,309 104,224
Total current liabilities 813,845 736,942
Long-term Debt 165,757 174,273
Other Long-term Liabilities 290,401 92,950
Deferred Income Taxes 172,744 203,465
Total liabilities 1,442,747 1,207,630
Stockholders' Equity:
Preferred Stock, shares issued:
none in 1993 and 1992 - -
Common Stock, shares issued:
74,669,057 in 1993 and 74,929,057 in 1992 74,669 74,929
Class B Common Stock, shares issued:
15,253,279 in 1993 and 15,257,279 in 1992 15,253 15,257
Additional paid-in capital 51,196 52,129
Cumulative foreign currency
translation adjustments (13,905) 2,484
Unearned ESOP compensation (41,515) (44,708)
Retained earnings 1,445,609 1,365,188
Treasury--Common Stock shares, at cost:
2,309,100 in 1993 and none in 1992 (118,963) -
Total stockholders' equity 1,412,344 1,465,279
Total liabilities and
stockholders' equity $2,855,091 $2,672,909
The notes to consolidated financial statements are an integral part of
these balance sheets.
Page 25
HERSHEY FOODS CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS - FINANCIAL CONDITION
Assets
Total assets increased $182.2 million or 7% as of December 31,
1993, primarily as a result of capital additions and intangibles
from business acquisitions, offset somewhat by a decrease in
current assets.
Current assets decreased by $51.0 million as a result of the
sale of the $179.1 million investment interest in Freia, which
was classified as a current asset as of December 31, 1992. This
decrease was partially offset by increases in accounts
receivable, resulting from inclusion of the accounts receivable
of acquired businesses and the timing and payment terms
associated with sales occurring toward the end of the year, and
current deferred income taxes.
The $164.9 million net increase in property, plant and equipment
included $65.6 million of assets acquired through business
acquisitions. Capital additions totaled $211.6 million in 1993,
while depreciation amounted to $100.1 million.
The increase in intangibles resulting from business acquisitions
as of December 31, 1993, principally reflected the preliminary
accounting for 1993 business acquisitions partially offset by
amortization of intangibles.
Liabilities
Total liabilities increased by $235.1 million or 19% as of
December 31, 1993, primarily due to higher long-term liabilities
associated with the adoption of FAS No. 106 and higher current
liabilities.
Current liabilities increased by $76.9 million principally as a
result of liabilities assumed as part of business acquisitions
and increases in accrued liabilities related to marketing
promotions, benefits, compensation, and timing of income tax
payments. A decline in current portion of long-term debt more
than offset an increase in short-term debt. Current portion of
long-term debt decreased by $90.9 million, reflecting the early
retirement of $95.2 million of long-term debt which had been
classified as current as of December 31, 1992. The increase in
short-term debt was a result of commercial paper borrowings to
finance capital additions and the share repurchase program.
The deferred income tax liability as of December 31, 1993 was
provided using the liability method as required by FAS No. 109,
which was adopted by the Corporation effective January 1, 1993.
The decrease of $30.7 million reflected the impact of adopting
FAS No. 109 and deferred income tax benefits associated with the
adoption of FAS No. 106.
Stockholders' Equity
Total stockholders' equity declined by 4% in 1993 primarily due
to the repurchase of Common Stock. Total stockholders' equity
has increased at a compound annual rate of 9% over the past ten
years.
Page 26
HERSHEY FOODS CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands of dollars)
Cumulative
Foreign Unearned
Class B Additional Currency ESOP Treasury Total
Preferred Common Common Paid-in Translation Compen- Retained Common Stockholders'
Stock Stock Stock Capital Adjustments sation Earnings Stock Equity
Balance as of January 1, 1991 $ - $74,910 $15,276 $49,249 $ 26,195 $ - $1,077,907 $ - $1,243,537
Net income 219,528 219,528
Dividends:
Common Stock, $.940 per share (70,426) (70,426)
Class B Common Stock,
$.850 per share (12,975) (12,975)
Foreign currency
translation adjustments 229 229
Conversion of Class B Common
Stock into Common Stock 11 (11) -
Incentive plan transactions (446) (446)
Employee stock ownership trust
transactions 3,706 (47,902) (44,196)
Balance as of December 31, 1991 - 74,921 15,265 52,509 26,424 (47,902) 1,214,034 - 1,335,251
Net income 242,598 242,598
Dividends:
Common Stock, $1.030 per share (77,174) (77,174)
Class B Common Stock,
$.935 per share (14,270) (14,270)
Foreign currency
translation adjustments (23,940) (23,940)
Conversion of Class B Common
Stock into Common Stock 8 (8) -
Incentive plan transactions (741) (741)
Employee stock ownership
trust transactions 361 3,194 3,555
Balance as of December 31, 1992 - 74,929 15,257 52,129 2,484 (44,708) 1,365,188 - 1,465,279
Net income 193,325 193,325
Dividends:
Common Stock, $1.140 per share (84,711) (84,711)
Class B Common Stock,
$1.035 per share (15,788) (15,788)
Foreign currency
translation adjustments (16,389) (16,389)
Conversion of Class B Common
Stock into Common Stock 4 (4) -
Incentive plan transactions (1,269) (1,269)
Employee stock ownership
trust transactions 487 3,193 3,680
Repurchase of Common Stock (264) (151) (12,405) (118,963) (131,783)
Balance as of December 31, 1993 $ - $74,669 $15,253 $51,196 $(13,905) $(41,515) $1,445,609 $(118,963) $1,412,344
The notes to consolidated financial statements are an integral part of
these statements.
Page 27
HERSHEY FOODS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Significant accounting policies employed by the Corporation are
discussed below and in other notes to the consolidated financial
statements. Certain reclassifications have been made to prior
year amounts to conform to the 1993 presentation.
Principles of Consolidation
The consolidated financial statements include the accounts of
the Corporation and its subsidiaries after elimination of
intercompany accounts and transactions. Investments in
affiliated companies are accounted for using the equity method.
Cash Equivalents
All highly liquid debt instruments purchased with a maturity of
three months or less are classified as cash equivalents.
Commodities Futures and Options Contracts
In connection with the purchasing of major commodities
(principally cocoa and sugar) for anticipated manufacturing
requirements, the Corporation enters into commodities futures
and options contracts as deemed appropriate to reduce the risk
of future price increases. These futures and options contracts
are accounted for as hedges and, accordingly, gains and losses
are deferred and recognized in cost of sales as part of the
product cost.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation
of buildings, machinery and equipment is computed using the
straight-line method over the estimated useful lives.
Intangibles Resulting from Business Acquisitions
Intangible assets resulting from business acquisitions
principally consist of the excess of the acquisition cost over
the fair value of the net assets of businesses acquired
(goodwill). Goodwill is amortized on a straight-line basis over
40 years. Other intangible assets are amortized on a
straight-line basis over their estimated useful lives.
Accumulated amortization of intangible assets resulting from
business acquisitions was $73.4 million and $61.2 million as of
December 31, 1993 and 1992, respectively.
Foreign Currency Translation
Results of operations for international entities are translated
using the average exchange rates during the period. For
international entities operating in non-highly inflationary
economies, assets and liabilities are translated to U.S. dollars
using the exchange rates in effect at the balance sheet date.
Resulting translation adjustments are recorded in a separate
component of stockholders' equity, "Cumulative Foreign Currency
Translation Adjustments."
Foreign Exchange Contracts
The Corporation enters into foreign exchange contracts to hedge
transactions denominated in international currencies and to
hedge payment of intercompany transactions with its non-domestic
subsidiaries. Gains and losses are accounted for as part of the
underlying transactions. In entering into these contracts the
Corporation has assumed the risk which might arise from the
possible inability of counterparties to meet the terms of their
contracts. The Corporation does not expect any losses as a
result of counterparty defaults.
As of December 31, 1993, the Corporation had contracts maturing
in 1994 and 1995 to purchase $39.1 million in foreign currency
at contracted forward rates, primarily British sterling and
Canadian dollars, and to sell $3.6 million in foreign currency
at contracted forward rates. As of December 31, 1992, the
Corporation had contracts maturing in 1993 and 1994 to purchase
$57.2 million in foreign currency at contracted forward rates,
primarily Canadian dollars and British sterling, and to sell at
$238.9 million in foreign currency at contracted forward rates,
related to Norwegian kroner to be received from the sale of the
Corporation's investment interest in Freia Marabou a.s (Freia)
as discussed below.
License Agreements
The Corporation has entered into license agreements under which
it has access to proprietary technology and manufactures and/or
markets and distributes certain products. The rights under
these agreements are extendable on a long-term basis at the
Corporation's option subject to certain conditions, including
minimum sales levels. License fees and royalties, payable under
the terms of the agreements, are expensed as incurred.
Page 28
2. ACQUISITIONS AND DIVESTITURE
In October 1993, the Corporation completed the purchase of the
outstanding shares of Overspecht B.V. (OZF Jamin) for
approximately $20.2 million, plus the assumption of
approximately $13.4 million in debt. OZF Jamin manufactures
chocolate and non-chocolate confectionery products, cookies,
biscuits and ice cream for distribution primarily to customers
in the Netherlands and Belgium.
In September 1993, the Corporation completed the acquisition of
the Italian confectionery business of Heinz Italia S.p.A.
(Sperlari) for approximately $130.0 million. Sperlari is a
leader in the Italian non-chocolate confectionery market and
manufactures and distributes a wide range of confectionery
products, including sugar candies and traditional products for
special occasions such as nougat and gift boxes. Products are
marketed under the Sperlari, Dondi, Scaramellini and other
brands.
In March 1993, the Corporation acquired certain assets of the
Cleveland area Ideal Macaroni and Weiss Noodle companies for
approximately $14.6 million.
In October 1991, the Corporation purchased the shares of
Nacional de Dulces, S.A. de C.V. (NDD) owned by its joint
venture partner, Grupo Carso, S.A. de C.V., for $10.0 million.
Prior to the acquisition, the Corporation owned 50% of the
outstanding stock of NDD. Subsequent to the acquisition, NDD
was renamed Hershey Mexico, S.A. de C.V. (Hershey Mexico).
Hershey Mexico produces, imports and markets chocolate products
for the Mexican market under the HERSHEY'S name.
In May 1991, the Corporation purchased certain assets of
Dairymen, Inc.'s ultra-high temperature fluid milk-processing
business, including a Savannah, Georgia manufacturing facility
for $2.2 million, plus the assumption of $8.5 million in debt.
Also in May 1991, the Corporation completed the acquisition of
the Gubor Schokoladen GmbH and Gubor Schokoladenfabrik GmbH
(Gubor) chocolate business from H. Bahlsens Keksfabrik KG for
$31.9 million, plus the assumption of $9.0 million in debt.
Gubor manufactures and markets high-quality assorted pralines
and seasonal chocolates in Germany. The acquisition was
effective as of January 1, 1991.
In accordance with the purchase method of accounting, the
purchase prices of the acquisitions summarized above were
allocated to the underlying assets and liabilities at the date
of acquisition based on their estimated respective fair values
which may be revised at a later date. Total liabilities
assumed, including debt, were $54.0 million in 1993 and $40.4
million in 1991. Results subsequent to the dates of acquisition
are included in the consolidated financial statements. Had the
results of these acquisitions been included in consolidated
results for the entire length of each period presented, the
effect would not have been material.
In April 1992, the Corporation completed the sale of Hershey do
Brasil Participacoes Ltda., a holding company which owned a
41.7% equity interest in Petybon S.A., to the Bunge & Born Group
for approximately $7.0 million. Petybon S.A., located in
Brazil, is a producer of pasta, biscuits and margarine products.
The sale resulted in a modest pre-tax gain and a reduction in
the effective income tax rate of .8% for 1992.
3. GAIN ON SALE OF INVESTMENT INTEREST
In May 1992, the Corporation completed the acquisition of an
18.6% investment interest in Freia for $179.1 million. The
investment was accounted for under the cost method in 1992. In
October 1992, the Corporation tendered its investment interest
in response to a Kraft General Foods Holdings Norway, Inc. (KGF)
bid to acquire Freia subject to certain conditions, including
approval by the Norwegian government.
KGF received approval of its ownership and, in March 1993, the
Corporation recorded a pre-tax gain of $80.6 million on the sale
of its Freia investment. This gain had the effect of increasing
net income by $40.6 million. Gross proceeds from the sale in
the amount of $259.7 million were received in April 1993.
Page 29
4. INTEREST EXPENSE
Interest expense, net consisted of the following:
For the years ended December 31, 1993 1992 1991
(in thousands of dollars)
Long-term debt and lease obligations $23,016 $30,435 $32,252
Short-term debt 11,854 11,328 7,403
Capitalized interest (4,646) (12,055) (10,386)
Gross interest expense 30,224 29,708 29,269
Interest income (3,229) (2,468) (2,424)
Interest expense, net $26,995 $27,240 $26,845
5. SHORT-TERM DEBT
Generally, the Corporation's short-term borrowings are in the
form of commercial paper or bank loans with an original maturity
of three months or less. The Corporation maintained lines of
credit arrangements with domestic and international commercial
banks, under which it could borrow in various currencies up to
$560 million as of December 31, 1993 and up to $377 million as
of December 31, 1992 at the lending banks' prime commercial
interest rates or lower. These lines of credit, which may be
used to support commercial paper borrowings, may be terminated
at the option of the Corporation. The Corporation had combined
domestic commercial paper borrowings and short-term
international bank loans against these lines of credit of $337.3
million and $259.0 million as of December 31, 1993 and 1992,
respectively.
Lines of credit were supported by commitment fee arrangements.
The fees were generally 1/8% per annum of the commitment. There
were no significant compensating balance agreements which
legally restricted these funds.
As a result of maintaining a consolidated cash management
system, the Corporation maintains overdraft positions at certain
banks. Such overdrafts, which were included in accounts
payable, were $17.2 million and $22.0 million as of December 31,
1993 and 1992, respectively.
6. LONG-TERM DEBT
Long-term debt consisted of the following:
December 31, 1993 1992
(in thousands of dollars)
Medium-term Notes, 8.45% to 9.92%, due 1994-1998 $ 55,400 $ 55,400
9.5% Sinking Fund Debentures due 2009 - 42,000
9.125% Sinking Fund Debentures due 2016 - 50,000
8.8% Debentures due 2021 100,000 100,000
Other obligations, net of unamortized
debt discount 23,666 31,097
Total long-term debt 179,066 278,497
Less -- current portion 13,309 104,224
Long-term portion $165,757 $174,273
As of December 31, 1992, current portion of long-term debt
included $95.2 million of debt which, in 1993, the Corporation
retired early using a portion of the proceeds from the sale of
its investment interest in Freia.
Aggregate annual maturities during the next five years are:
1994, $13.3 million; 1995, $7.8 million; 1996, $2.1 million;
1997, $15.9 million; and 1998, $25.5 million. The Corporation's
debt is principally unsecured and of equal priority. None of
the debt is convertible into stock of the Corporation. The
Corporation is in compliance with all covenants included in the
related debt agreements.
Page 30
7. INCOME TAXES
Effective January 1, 1993, the Corporation adopted Statement of
Financial Accounting Standards No. 109 "Accounting for Income
Taxes" (FAS No. 109), which requires the use of the liability
method of accounting for deferred income taxes. This change in
accounting as of January 1, 1993, which was recorded as a
catch-up adjustment, increased net income by $8.2 million or
$.09 per share.
The provision for income taxes, which included the effect of an
increase in the Federal statutory income tax rate as provided
for in the Revenue Reconciliation Act of 1993 but excluded the
FAS No. 109 catch-up adjustment, was as follows:
For the years ended December 31, 1993 1992 1991
(in thousands of dollars)
Current:
Federal $141,541 $104,223 $ 96,074
State 37,358 30,968 25,128
International 23,696 1,795 2,073
Current provision for income taxes 202,595 136,986 123,275
Deferred:
Federal 2,949 11,770 12,618
State 1,764 4,579 6,111
International 6,334 5,055 1,925
Deferred provision for income taxes 11,047 21,404 20,654
Total provision for income taxes $213,642 $158,390 $143,929
The tax effects of the significant temporary differences which comprised the
deferred tax assets and liabilities were as follows:
Net
Deferred Deferred Deferred
Income Income Income
Tax Tax Tax Assets
December 31, 1993 Assets (Liabilities) (Liabilities)
(in thousands of dollars)
Current:
Post-retirement benefit obligations $ 3,478 $ -
Accrued expenses and other reserves 70,678 -
Other 16,555 (5,163)
Total current deferred income taxes 90,711 (5,163) $ 85,548
Non-current:
Depreciation - (214,566)
Post-retirement benefit obligations 78,190 -
Accrued expenses and other reserves 24,800 -
Other 10,744 (71,912)
Total non-current deferred income taxes 113,734 (286,478) (172,744)
Total deferred income taxes $204,445 $(291,641) $ (87,196)
Page 31
The following table reconciles the Federal statutory income tax rate with the
Corporation's effective income tax rate:
For the years ended December 31, 1993 1992 1991
Federal statutory tax rate 35.0% 34.0% 34.0%
Increase (reduction) resulting from:
State income taxes, net of Federal income benefits 6.2 6.0 5.5
Sale of investment interest 1.5 - -
Non-deductible acquisition costs 0.6 0.9 1.0
Sale of equity interest - (0.8) -
Corporate-owned life insurance (1.0) (1.0) (1.1)
Other, net (0.5) 0.4 0.2
Effective income tax rate 41.8% 39.5% 39.6%
8. RETIREMENT PLANS
The Corporation and its subsidiaries sponsor several defined
benefit retirement plans covering substantially all employees.
Plans covering most domestic salaried and hourly employees
provide retirement benefits based on individual account balances
which are increased annually by pay-related and interest
credits. Plans covering certain non-domestic employees provide
retirement benefits based on career average pay, final pay, or
final average pay as defined within the provisions of the
individual plans. The Corporation also participates in several
multi-employer retirement plans which provide defined benefits
to employees covered under certain collective bargaining
agreements.
The Corporation's policy is to fund domestic pension liabilities
in accordance with the minimum and maximum limits imposed by the
Employee Retirement Income Security Act of 1974 and Federal
income tax laws, respectively. Non-domestic pension liabilities
are funded in accordance with applicable local laws and
regulations. Plan assets are invested in a broadly diversified
portfolio consisting primarily of domestic and international
common stocks and fixed income securities.
Pension expense included the following components:
For the years ended December 31, 1993 1992 1991
(in thousands of dollars)
Service cost $ 27,835 $ 22,858 $ 20,056
Interest cost on projected benefit obligations 26,423 24,098 22,148
Investment return on plan assets (46,232) (12,331) (53,627)
Net amortization and deferral 18,519 (15,245) 30,161
Corporate sponsored plans 26,545 19,380 18,738
Multi-employer plans 612 580 1,231
Other 678 630 645
Total pension expense $ 27,835 $ 20,590 $ 20,614
Page 32
The funded status and amounts recognized in the consolidated balance
sheets for the retirement plans were as follows:
December 31, 1993 December 31, 1992
Assets Accumulated Assets Accumulated
Exceeded Benefits Exceeded Benefits
Accumulated Exceeded Accumulated Exceeded
Benefits Assets Benefits Assets
(in thousands of dollars)
Actuarial present value of:
Vested benefit obligations $144,608 $204,861 $1,643 $319,635
Accumulated benefit obligations $155,838 $221,867 $1,987 $344,091
Actuarial present value of
projected benefit obligations $185,926 $231,972 $3,255 $375,715
Plan assets at fair value 166,727 181,813 2,566 305,255
Plan assets less than projected
benefit obligations 19,199 50,159 689 70,460
Net gain (loss) unrecognized at
date of transition (5,440) 4,381 79 (1,306)
Prior service cost and amendments
not yet recognized in earnings 94 (11,556) (6) (12,815)
Unrecognized net loss from past
experience different than that
assumed (7,171) (13,948) (708) (29,664)
Minimum liability adjustment - 14,866 - 18,999
Accrued pension liability $ 6,682 $ 43,902 $ 54 $ 45,674
The projected benefit obligations for the plans were determined
principally using a discount rate of 7.0% as of December 31,
1993 and 1992. For both 1993 and 1992 the assumed long-term
compensation increase rate and the assumed long-term rate of
return on plan assets were primarily 6.0% and 9.5%,
respectively.
9. POST-RETIREMENT BENEFITS
The Corporation and its subsidiaries provide certain health care
and life insurance benefits for retired employees subject to
pre-defined limits. Substantially all of the Corporation's
domestic employees become eligible for these benefits at
retirement with a pre-defined benefit being available at an
early retirement date. The post-retirement medical benefit is
contributory for pre-Medicare retirees and for most post-
Medicare retirees retiring on or after February 1, 1993.
Retiree contributions are based upon a combination of years of
service and age at retirement. The post-retirement life
insurance benefit is non-contributory.
Effective January 1, 1993, the Corporation adopted Statement of
Financial Accounting Standards No. 106 "Employers' Accounting
for Post-retirement Benefits Other Than Pensions" (FAS No. 106)
which requires that the cost of post-retirement benefits be
accrued during employees' working careers. The Corporation
elected to adopt FAS No. 106 by means of a catch-up adjustment
which had the effect of decreasing net income by $112.2 million,
or $1.25 per share, after a deferred tax benefit of $76.3
million.
Prior to 1993, the Corporation accounted for such benefits as an
expense as paid. Expense recognized under FAS No. 106 during
1993 incrementally reduced net income by $5.9 million and
consisted of the following components (in thousands of dollars):
Service cost $ 3,997
Interest cost on projected benefit obligations 12,897
Amortization (280)
Total $16,614
Obligations are unfunded and the actuarial present value of
accumulated post-retirement benefit obligations recognized in
the consolidated balance sheet as of December 31, 1993 was as
follows (in thousands of dollars):
Retirees $ 87,765
Fully eligible active plan participants 31,852
Other active plan participants 65,069
Total 184,686
Plan amendments 5,746
Unrecognized net gain from past experience
different than that assumed 7,976
Accrued post-retirement benefits $198,408
Page 33
The accumulated post-retirement benefit obligations were
determined using a discount rate of 7.5% as of December 31,
1993. The assumed average health care cost trend rate used in
measuring the accumulated post-retirement benefit obligations as
of December 31, 1993 was principally 12% in 1993, gradually
declining to approximately 7% over ten years. A one percentage
point increase in the average health care cost trend rate would
increase the accumulated post-retirement benefit obligations as of
December 31, 1993 by $18.3 million and the sum of the service
and interest costs by $2.2 million.
As part of its long-range financing plans, the Corporation, in
1989, implemented a corporate-owned life insurance program
covering most of its domestic employees. After paying employee
death benefits, proceeds from this program will be available for
general corporate purposes and may be used to offset future
employee benefits costs, including retiree medical benefits.
The Corporation's investment in corporate-owned life insurance
policies was recorded net of policy loans in other assets, and
interest accrued on the policy loans was included in accrued
liabilities as of December 31, 1993. Net life insurance
expense, including interest expense, was included in selling,
marketing and administrative expenses.
10. EMPLOYEE STOCK OWNERSHIP TRUST
In 1991, the Corporation established an employee stock ownership
trust (ESOP) to serve as the primary vehicle for the
Corporation's contributions to its existing employee savings and
stock investment plan for participating domestic salaried and
hourly employees. The ESOP was funded by a 15-year 7.75% loan
of $47.9 million from the Corporation. The proceeds from this
loan were used to purchase, at a market price of $40 1/8 per
share, 1,193,816 shares of the Corporation's Common Stock which
it had previously acquired through open market purchases.
During 1993 and 1992, the ESOP received a combination of
dividends on unallocated shares and contributions from the
Corporation equal to the amount required to meet its principal
and interest payments under the loan. Simultaneously, the ESOP
allocated to participants 79,588 shares of Common Stock each
year. As of December 31, 1993 the ESOP held 152,406 of
allocated shares and 1,034,640 of unallocated shares.
The Corporation recognized net compensation expense equal to the
shares allocated multiplied by the original cost of $40 1/8 per
share less dividends received by the ESOP on unallocated shares.
Compensation expense related to the ESOP for 1993 and 1992 was
$2.0 million and $2.3 million, respectively. Dividends paid on
unallocated ESOP shares were $1.2 million in 1993 and $.9
million in 1992. The unearned ESOP compensation balance of
$41.5 million as of December 31, 1993 represented deferred
compensation expense to be recognized by the Corporation in
future years as additional shares are allocated to participants.
11. CAPITAL STOCK AND NET INCOME PER SHARE
As of December 31, 1993, the Corporation had 530,000,000
authorized shares of capital stock. Of this total, 450,000,000
shares were designated as Common Stock, 75,000,000 shares as
Class B Common Stock (Class B Stock), and 5,000,000 shares as
Preferred Stock, each class having a par value of one dollar per
share. As of December 31, 1993, a combined total of 89,922,336
shares of both classes of common stock had been issued of which
87,613,236 shares were outstanding. No shares of the Preferred
Stock were issued or outstanding during the three-year period
ended December 31, 1993.
The Common Stock and the Class B Stock generally vote together
without regard to class on matters submitted to stockholders,
including the election of directors, with the Common Stock
having one vote per share and the Class B Stock having ten votes
per share. However, the Common Stock, voting separately as a
class, is entitled to elect one-sixth of the Board of Directors.
With respect to dividend rights, the Common Stock is entitled to
cash dividends 10% higher than those declared and paid on the
Class B Stock.
Class B Stock can be converted into Common Stock on a
share-for-share basis at any time. During 1993, 1992 and 1991,
a total of 4,000, 7,775, and 11,350 shares, respectively, of
Class B Stock were converted into Common Stock.
Hershey Trust Company, as Trustee for Milton Hershey School
(Hershey Trust), as institutional fiduciary for estates and
trusts unrelated to Milton Hershey School, and as direct owner
of investment shares, held a total of 21,398,312 shares of the
Common Stock, and as Trustee
Page 34
for Milton Hershey School, held 15,153,003 shares of the Class B
Stock as of December 31, 1993, and was entitled to cast approximately
77% of the total votes of both classes of the Corporation's common stock.
Hershey Trust must approve the issuance of shares of Common Stock or any
other action which would result in the Hershey Trust not continuing to
have voting control of the Corporation.
During the second quarter of 1993, the Corporation's Board of
Directors approved a share repurchase program to acquire from
time to time through open market or privately negotiated
transactions up to $200 million of Common Stock. During 1993, a
total of 2,573,100 shares were repurchased at an average price
of $51 of which 264,000 shares were retired and the remaining
2,309,100 shares were held as treasury stock as of December 31,
1993. Of the total purchased, 2,000,000 shares were acquired
from Hershey Trust for approximately $103.1 million.
Net income per share has been computed based on the weighted
average number of shares of the Common Stock and the Class B
Stock outstanding during the year. Average shares outstanding
were 89,757,135 for 1993 and 90,186,336 for 1992 and 1991.
12. INCENTIVE PLAN
The long-term portion of the 1987 Key Employee Incentive Plan
(Plan) provides for grants or awards to senior executives and
key employees of one or more of the following: performance
stock units, non-qualified stock options (stock options), stock
appreciation rights and restricted stock units. The Plan also
provides for the deferral of performance stock unit awards by
participants.
As of December 31, 1993, a total of 190,855 contingent
performance stock units and restricted stock units had been
granted for potential future distribution, primarily related to
three-year cycles ending December 31, 1993, 1994 and 1995.
Deferred performance stock units and accumulated dividend
amounts totaled 255,288 shares as of December 31, 1993.
Stock options are granted at exercise prices of not less than
100% of the fair market value of a share of Common Stock at the
time the option is granted and are exercisable for periods no
longer than ten years from the date of grant. Each option may
be used to purchase one share of Common Stock. No compensation
expense is recognized under the stock options portion of the
Plan.
No stock appreciation rights had been granted or awarded as of
December 31, 1993.
Stock option activity was as follows:
Shares under Options
Number Option Price
of Shares per Share
Outstanding -- January 1, 1991 834,960 $23-3/4 to 35-3/8
Granted 59,800 $36-1/4
Exercised (30,135) $23-3/4 to 28
Cancelled (7,500) $35-3/8
Outstanding -- December 31, 1991 857,125 $23-3/4 to 36-1/4
Granted 939,000 $41-1/8 to 44-3/4
Exercised (69,650) $23-3/4 to 35-3/8
Cancelled (9,500) $44-3/4
Outstanding -- December 31, 1992 1,716,975 $25-3/8 to 44-3/4
Granted 116,600 $47 to 53
Exercised (82,850) $25-3/8 to 35-3/8
Cancelled (20,300) $44-3/4
Outstanding -- December 31, 1993 1,730,425 $25-3/8 to 53
Page 35
13. SUPPLEMENTAL INCOME STATEMENT INFORMATION
Supplemental income statement information is provided in the table below.
These costs were expensed in the year incurred.
For the years ended December 31, 1993 1992 1991
(in thousands of dollars)
Promotion $444,546 $398,577 $325,465
Advertising 130,009 137,631 117,049
Maintenance and repairs 85,845 79,563 72,192
Depreciation expense 100,124 84,434 72,735
Rent expense 24,524 23,960 23,288
Research and development 26,151 24,203 22,770
Rent expense pertains to all operating leases which were
principally related to certain administrative buildings,
distribution facilities and transportation equipment. Future
minimum rental payments under non-cancellable operating leases
with a remaining term in excess of one year as of December 31,
1993, were: 1994, $12.3 million; 1995, $12.0 million; 1996,
$11.4 million; 1997, $11.1 million; 1998, $10.7 million; 1999
and beyond, $102.8 million.
Amounts for taxes other than payroll and income taxes,
amortization of intangibles resulting from business
acquisitions, and royalties were less than 1% of net sales.
14. SUPPLEMENTAL BALANCE SHEET INFORMATION
Accounts Receivable - Trade
In the normal course of business, the Corporation extends credit
to customers which satisfy pre-defined credit criteria. The
Corporation believes that it has little concentration of credit
risk due to the diversity of its customer base. Receivables, as
shown on the consolidated balance sheets, were net of allowances
and anticipated discounts of $12.5 million and $10.4 million as
of December 31, 1993 and 1992, respectively.
Inventories
The Corporation values the majority of its inventories under the
last-in, first-out (LIFO) method and the remaining inventories
at the lower of first-in, first-out (FIFO) cost or market. LIFO
cost of inventories valued using the LIFO method was $310.6
million as of December 31, 1993 and $350.4 million as of
December 31, 1992 and all inventories were stated at amounts
that did not exceed realizable values. Total inventories were
as follows:
December 31, 1993 1992
(in thousands of dollars)
Raw materials $209,570 $243,243
Goods in process 37,261 30,965
Finished goods 265,616 231,313
Inventories at FIFO 512,447 505,521
Adjustment to LIFO (59,005) (48,342)
Total inventories $453,442 $457,179
Property, Plant and Equipment
Property, plant and equipment balances included construction in progress of
$171.1 million and $196.9 million as of December 31,1993 and 1992,
respectively. Major classes of property, plant and equipment were as follows:
December 31, 1993 1992
(in thousands of dollars)
Land $ 48,239 $ 40,163
Buildings 430,199 385,545
Machinery and equipment 1,563,326 1,371,729
Property, plant and equipment, gross 2,041,764 1,797,437
Accumulated depreciation 580,860 501,448
Property, plant and equipment, net $1,460,904 $1,295,989
Page 36
Accrued Liabilities
Accrued liabilities were as follows:
December 31, 1993 1992
(in thousands of dollars)
Payroll and other compensation $ 81,909 $ 63,088
Advertising and promotion 89,819 72,735
Other 130,261 104,993
Total accrued liabilities $301,989 $240,816
Other Long-term Liabilities
Other long-term liabilities were as follows:
December 31, 1993 1992
(in thousands of dollars)
Accrued post-retirement benefits $189,959 $ -
Other 100,442 92,950
Total other long-term liabilities $290,401 $92,950
15. SEGMENT INFORMATION
The Corporation operates in a single consumer foods line of
business, encompassing the domestic and international
manufacture, distribution and sale of chocolate, confectionery,
grocery and pasta products.
Operations in Canada and Europe represent the majority of the
Corporation's international business. Historically, transfers
of product between geographic areas have not been significant.
Net sales, income before interest, income taxes and accounting
changes, and identifiable assets by geographic segment were as
follows:
For the years ended December 31, 1993 1992 1991
(in thousands of dollars)
Net sales:
Domestic $3,080,329 $2,871,438 $2,566,448
International 407,920 348,367 332,717
Total $3,488,249 $3,219,805 $2,899,165
Income before interest, income taxes
and accounting changes:
Domestic $ 446,565 $ 419,317 $ 381,549
International 10,663 8,911 8,753
Gain on sale of investment interest 80,642 - -
Total $ 537,870 $ 428,228 $ 390,302
Identifiable assets as of December 31:
Domestic $2,281,766 $2,353,230 $2,003,425
International 573,325 319,679 338,397
Total $2,855,091 $2,672,909 $2,341,822
Page 37
16. QUARTERLY DATA (Unaudited)
Summary quarterly results were as follows:
(in thousands of dollars except per share amounts)
Year 1993 First Second Third Fourth
Net sales $897,788 $618,430 $935,662 $1,036,369
Gross profit 387,019 254,834 390,846 460,048
Income before cumulative effect
of accounting changes 105,055 26,025 73,971 92,182
Net cumulative effect of
accounting changes (103,908) - - -
Net income 1,147(a) 26,025 73,971 92,182
Income per share(b):
Before accounting changes 1.16 .29 .82 1.04
Net cumulative effect of accounting
changes (1.15) - - -
Net income .01 .29 .82 1.04
Weighted average shares outstanding 90,186 90,186 90,124 88,489
Year 1992 First Second Third Fourth
Net sales $800,967 $621,840 $827,475 $969,523
Gross profit 337,529 266,791 352,792 429,305
Net income 58,924 34,475 66,880 82,319
Net income per share .65 .39 .74 .91
Weighted average shares outstanding 90,186 90,186 90,186 90,186
(a) Net income for the first quarter and year 1993 included the net cumulative effect
of accounting changes for post-retirement benefits and income taxes of
$(103.9) million and an after-tax gain on the sale of the investment interest
in Freia of $40.6 million. Net income per share was similarly impacted.
(b) Quarterly income per share amounts for 1993 do not total to annual amounts due
to the changes in weighted average shares outstanding during the year.
Page 38
RESPONSIBILITY FOR FINANCIAL STATEMENTS
Hershey Foods Corporation is responsible for the financial
statements and other financial information contained in this
report. The Corporation believes that the financial statements
have been prepared in conformity with generally accepted
accounting principles appropriate under the circumstances to
reflect in all material respects the substance of applicable
events and transactions. In preparing the financial statements,
it is necessary that management make informed estimates and
judgments. The other financial information in this annual
report is consistent with the financial statements.
The Corporation maintains a system of internal accounting
controls designed to provide reasonable assurance that financial
records are reliable for purposes of preparing financial
statements and that assets are properly accounted for and
safeguarded. The concept of reasonable assurance is based on
the recognition that the cost of the system must be related to
the benefits to be derived. The Corporation believes its system
provides an appropriate balance in this regard. The Corporation
maintains an Internal Audit Department which reviews the
adequacy and tests the application of internal accounting
controls.
The financial statements have been audited by Arthur Andersen &
Co., independent public accountants, whose appointment was
ratified by stockholder vote at the stockholders' meeting held
on April 26, 1993. Their report expresses an opinion that the
Corporation's financial statements are fairly stated in
conformity with generally accepted accounting principles, and
they have indicated to us that their examination was performed
in accordance with generally accepted auditing standards which
are designed to obtain reasonable assurance about whether the
financial statements are free of material misstatement.
The Audit Committee of the Board of Directors of the
Corporation, consisting solely of outside directors, meets
regularly with the independent public accountants, internal
auditors and management to discuss, among other things, the
audit scopes and results. Arthur Andersen & Co. and the
internal auditors both have full and free access to the Audit
Committee, with and without the presence of management.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors
of Hershey Foods Corporation:
We have audited the accompanying consolidated balance sheets of
Hershey Foods Corporation (a Delaware Corporation) and
subsidiaries as of December 31, 1993 and 1992, and the related
consolidated statements of income, stockholders' equity and cash
flows for each of the three years in the period ended
December 31, 1993, appearing on pages 20, 22, 24, 26 and 27
through 36. These financial statements are the responsibility
of the Corporation's management. Our responsibility is to
express an opinion on these financial statements based on our
audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of Hershey Foods Corporation and subsidiaries as of December 31,
1993 and 1992, and the results of their operations and cash
flows for each of the three years in the period ended December
31, 1993 in conformity with generally accepted accounting
principles.
As discussed in Notes 7 and 9 to the consolidated financial
statements, effective January 1, 1993, the Corporation changed
its methods of accounting for income taxes and post-retirement
benefits other than pensions.
/s/Arthur Andersen & Co.
New York, N.Y.
January 28, 1994
Page 40
HERSHEY FOODS CORPORATION
ELEVEN-YEAR CONSOLIDATED FINANCIAL SUMMARY
10-Year
Compound
Growth
Rate 1993 1992 1991 1990 1989
(all dollar and share amounts in thousands except
market price and per share statistics)
Summary of Operations(a)
Net Sales 10.5% $ 3,488,249 3,219,805 2,899,165 2,715,609 2,420,988
Cost of Sales 9.0% $ 1,995,502 1,833,388 1,694,404 1,588,360 1,455,612
Selling, Marketing and Administrative 14.4% $ 1,035,519 958,189 814,459 776,668 655,040
Gain on Business Restructuring, Net $ - - - 35,540 -
Gain on Sale of Investment Interest $ 80,642 - - - -
Interest Expense, Net 6.3% $ 26,995 27,240 26,845 24,603 20,414
Income Taxes 11.8% $ 213,642 158,390 143,929 145,636 118,868
Income from Continuing Operations
Before Accounting Changes 13.9% $ 297,233 242,598 219,528 215,882 171,054
Net Cumulative Effect of Accounting Changes $ (103,908) - - - -
Discontinued Operations $ - - - - -
Net Income 6.8% $ 193,325 242,598 219,528 215,882 171,054
Income Per Share:
From Continuing Operations
Before Accounting Changes(b) 4.4% $ 3.31(g) 2.69 2.43 2.39(h) 1.90
Net Cumulative Effect of Accounting Changes $ (1.16) - - - -
Net Income(b) 7.2% $ 2.15(g) 2.69 2.43 2.39(h) 1.90
Weighted Average Shares Outstanding (b) 89,757 90,186 90,186 90,186 90,186
Dividends Paid on Common Stock 9.4% $ 84,711 77,174 70,426 74,161(d) 55,431
Per Share (b) 12.0% $ 1.140 1.030 .940 .990(d) .740
Dividends Paid on Class B Common Stock $ 15,788 14,270 12,975 13,596(d) 10,161
Per Share (b) $ 1.035 .935 .850 .890(d) .665
Income from Continuing Operations Before:
Interest,Income Taxes, and Accounting
Changes as a Percent of Net Sales 13.1%(c) 13.3% 13.5% 12.9%(e) 12.8%
Accounting Changes as a Percent of Net Sales 7.4%(c) 7.5% 7.6% 7.2%(e) 7.1%
Depreciation 18.3% $ 100,124 84,434 72,735 61,725 54,543
Advertising 7.8% $ 130,009 137,631 117,049 146,297 121,182
Promotion 18.9% $ 444,546 398,577 325,465 315,242 256,237
Payroll 9.2% $ 469,564 433,162 398,661 372,780 340,129
Year-end Position and Statistics(a)
Working Capital (8.9%) $ 75,151 203,039 273,747 320,552 281,821
Capital Additions 11.4% $ 211,621 249,795 226,071 179,408 162,032
Total Assets 12.0% $ 2,855,091 2,672,909 2,341,822 2,078,828 1,814,101
Long-term Portion of Debt 4.5% $ 165,757 174,273 282,933 273,442 216,108
Stockholders' Equity 9.0% $ 1,412,344 1,465,279 1,335,251 1,243,537 1,117,050
Current Ratio 1.1:1 1.3:1 1.6:1 1.9:1 2.0:1
Capitalization Ratio 27% 27% 22% 19% 17%
Net Book Value Per Share (b) 9.8% $ 16.12 16.25 14.81 13.79 12.39
Operating Return on Average
Stockholders' Equity 17.8% 17.3% 17.0% 16.6% 16.1%
Operating Return on Average
Invested Capital 15.0% 14.4% 13.8% 13.4% 13.2%
Full-time Employees at Year-end 14,300 13,700 14,000 12,700 11,800
Stockholders' Data
Outstanding Shares of Common Stock and
Class B Common Stock at Year-end (b) 87,613 90,186 90,186 90,186 90,186
Market Price of Common Stock at Year-end (b) 16.7% $ 49 47 44 3/8 37 1/2 35 7/8
Range During Year (b) $55 7/8-43 1/2 48 3/8-38 1/4 44 1/2-35 1/8 39 5/8-28 1/4 36 7/8-24 3/4
Notes:
(a) All amounts for years prior to 1988 have been restated for
discontinued operations, where applicable. Operating Return on
Average Stockholders' Equity and Operating Return on Average
Invested Capital have been computed using Net Income, excluding
the 1988 gain and 1985 loss on disposal included in Discontinued
Operations, the 1993 Net Cumulative Effect of Accounting
Changes, and the after-tax impacts of the 1990 Gain on Business
Restructuring, Net, and the 1993 Gain on Sale of the Investment
Interest in Freia Marabou a.s (Freia).
(b) All shares and per share amounts, have been adjusted for the
three-for-one stock split effective September 15, 1986 and the
two-for-one stock split effective September 15, 1983.
(c) Calculated percent excludes the Gain on Sale of Investment
Interest in Freia. Including the gain, Income from Continuing
Operations Before Interest, Income Taxes and Accounting Changes
as a Percent of Net Sales was 15.4% and Income from Continuing
Operations Before Accounting Changes as a Percent of Net Sales
was 8.5%
(d) Amounts included a special dividend for 1990 of $11.2 million
or $.15 per share of Common Stock and $2.1 million or $.135 per
share of Class B Common Stock.
Page 41
HERSHEY FOODS CORPORATION
ELEVEN-YEAR CONSOLIDATED FINANCIAL SUMMARY
1988 1987 1986 1985 1984 1983
(all dollar and share amounts in thousands except
market price and per share statistics)
Summary of Operations(a)
Net Sales $ 2,168,048 1,863,816 1,635,486 1,526,584 1,423,396 1,280,379
Cost of Sales $ 1,326,458 1,149,663 1,032,061 982,370 934,817 844,488
Selling, Marketing and Administrative $ 575,515 468,062 387,227 345,299 309,587 270,472
Gain on Business Restructuring, Net $ - - - - - -
Gain on Sale of Investment Interest $ - - - - - -
Interest Expense, Net $ 29,954 22,413 8,061 10,240 8,325 14,602
Income Taxes $ 91,615 99,604 100,931 91,910 82,986 70,123
Income from Continuing Operations
Before Accounting Changes $ 144,506 124,074 107,206 96,765 87,681 80,694
Net Cumulative Effect of Accounting Changes $ - - - - - -
Discontinued Operations $ 69,443 24,097 25,558 15,462 21,001 19,472
Net Income $ 213,949 148,171 132,764 112,227 108,682 100,166
Income Per Share:
From Continuing Operations Before
Accounting Changes(b) $ 1.60 1.38 1.15 1.03 .93 .86
Net Cumulative Effect of Accounting Changes $ - - - - - -
Net Income Per Share (b) $ 2.37 1.64 1.42 1.19 1.16 1.07
Weighted Average Shares Outstanding (b) 90,186 90,186 93,508 94,011 94,011 94,011
Dividends Paid on Common Stock $ 49,433 43,436 40,930 37,386 37,073 34,470
Per Share (b) $ .660 .580 .520 .475 .413 .367
Dividends Paid on Class B Common Stock $ 9,097 8,031 7,216 6,556 1,607 -
Per Share (b) $ .595 .525 .472 .428 .105 -
Income from Continuing Operations Before:
Interest,Income Taxes, and Accounting
Changes as a Percent of Net Sales 12.3% 13.2% 13.2% 13.0% 12.6% 12.9%
Accounting Changes as a Percent of
Net Sales 6.7% 6.7% 6.6% 6.3% 6.2% 6.3%
Depreciation $ 43,721 35,397 31,254 28,348 22,725 18,594
Advertising $ 99,082 97,033 83,600 77,135 71,070 61,274
Promotion $ 230,187 171,162 122,508 105,401 94,921 78,773
Payroll $ 298,483 263,529 238,742 222,267 208,395 195,254
Year-end Position and Statistics(a)
Working Capital $ 273,716 190,069(f) 174,147 225,345 187,642 191,435
Capital Additions $ 101,682 68,504 74,452 61,361 45,258 71,697
Total Assets $ 1,764,665 1,544,354 1,262,332 1,116,074 1,052,161 920,329
Long-term Portion of Debt $ 233,025 280,900 185,676 86,986 103,155 106,543
Stockholders' Equity $ 1,005,866 832,410 727,941 727,899 660,928 596,037
Current Ratio 1.8:1 1.7:1(f) 2.0:1 2.4:1 2.1:1 2.6:1
Capitalization Ratio 22% 27% 21% 12% 14% 16%
Net Book Value Per Share (b) $ 11.15 9.23 8.07 7.74 7.03 6.34
Operating Return on Average
Stockholders' Equity 17.5% 19.0% 18.2% 17.2% 17.3% 17.8%
Operating Return on Average
Invested Capital 13.3% 13.5% 13.5% 13.5% 13.5% 13.8%
Full-time Employees at Year-end 12,100 10,540 10,210 10,380 10,150 9,630
Stockholders' Data
Outstanding Shares of Common Stock and
Class B Common Stock at Year-end (b) 90,186 90,186 90,186 94,011 94,011 94,011
Market Price of Common Stock at Year-end (b) $ 26 24 1/2 24 5/8 17 1/8 12 7/8 10 1/2
Range During Year (b) $28 5/8-21 7/8 37 3/4-20 3/4 30-15 1/2 18 3/8-11 5/8 13 3/4-9 3/8 11 5/8-8 1/8
(e) Calculated percent excludes the Gain on Business
Restructuring, Net. Including the gain, Income from Continuing
Operations Before Interest and Income Taxes as a Percent of Net
Sales was 14.2% and Income from Continuing Operations as a
Percent of Net Sales was 7.9%
(f) Amounts exclude net assets of discontinued operations.
(g) Income Per Share from Continuing Operations Before Accounting
Changes and Net Income Per Share for 1993 included a $.45 per
share gain on the sale of the investment interest in Freia.
Excluding the impact of this gain, Income Per Share from
Continuing Operations Before Accounting Changes would have been
$2.86.
(h) Income Per Share from Continuing Operations and Net Income
Per Share for 1990 included a $.22 per share Gain on Business
Restructuring, Net. Excluding the impact of this gain, Income
Per Share from Continuing Operations Before Accounting Changes
and Net Income Per Share would have been $2.17.
EXHIBIT 21
SUBSIDIARIES OF REGISTRANT
The following is a listing of Subsidiaries of the Corporation, their
jurisdictions of incorporation, and the name under which they do business.
Each is wholly owned. Certain subsidiaries are not listed since, considered
in the aggregate as a single subsidiary, they would not constitute a
significant subsidiary as of December 31, 1993.
Jurisdiction of
Name of Subsidiary Incorporation
Hershey Canada Inc. Canada
Hershey Holding Corporation Delaware
Sperlari S.r.l. Italy
