HERSHEY CO — Interim / Quarterly Report 2003

May 8, 2003

10-Q 1 firstqtr200310q.htm FORM 10Q-FIRST QUARTER ENDING MARCH 30, 2003 Current Report on Form 10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 30, 2003

OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __to_

Commission file number: 1-183

HERSHEY FOODS CORPORATION 100 Crystal A Drive Hershey, PA 17033 Registrant's telephone number: 717-534-6799

State of Incorporation Delaware IRS Employer Identification No. 23-0691590

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 whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes [ X ] No [ ]

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

Common Stock, $1 par value - 100,769,907 shares, as of April 25, 2003. Class B Common Stock, $1 par value - 30,422,096 shares, as of April 25, 2003.

Exhibit Index - Page 17

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PART I - FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements (Unaudited)

HERSHEY FOODS CORPORATION CONSOLIDATED STATEMENTS OF INCOME (in thousands except per share amounts)

For the Three Months Ended -------------------------- March 30, March 31, 2003 2002 ---- ---- Net Sales $ 953,162 $ 988,506 -------- --------- Costs and Expenses: Cost of sales 596,879 624,024 Selling, marketing and administrative 187,552 202,741 Business realignment charge - 8,762 -------- --------- Total costs and expenses 784,431 835,527 -------- --------- Income before Interest and Income Taxes 168,731 152,979 Interest expense, net 14,611 15,465 -------- --------- Income before Income Taxes 154,120 137,514 Provision for income taxes 56,562 50,469 -------- --------- Net Income $ 97,558 $ 87,045 ======== ========= Net Income Per Share-Basic $ .73 $ .64 ======== ========= Net Income Per Share-Diluted $ .73 $ .63 ======== ========= Average Shares Outstanding-Basic 133,366 136,707 ======== ========= Average Shares Outstanding-Diluted 134,228 138,219 ======== ========= Cash Dividends Paid per Share: Common Stock $ .3275 $ .3025 ======== ========= Class B Common Stock $ .2950 $ .2725 ======== ========= The accompanying notes are an integral part of these statements.

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HERSHEY FOODS CORPORATION CONSOLIDATED BALANCE SHEETS MARCH 30, 2003 AND DECEMBER 31, 2002 (in thousands of dollars)

ASSETS 2003 2002 ------- ------ Current Assets: Cash and cash equivalents $ 144,076 $ 297,743 Accounts receivable - trade 296,003 370,976 Inventories 554,483 503,291 Prepaid expenses and other 100,612 91,608 ----------- ---------- Total current assets 1,095,174 1,263,618 ----------- ---------- Property, Plant and Equipment, at cost 2,941,303 2,903,019 Less-accumulated depreciation and amortization (1,447,704) (1,416,964) ----------- ---------- Net property, plant and equipment 1,493,599 1,486,055 ----------- ---------- Goodwill 381,863 378,453 Other Intangibles 39,772 39,898 Other Assets 302,144 312,527 ----------- ---------- Total assets $ 3,312,552 $ 3,480,551 =========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable $ 121,729 $ 124,507 Accrued liabilities 322,820 356,716 Accrued income taxes 45,686 12,731 Deferred income taxes 11,764 24,768 Short-term debt 10,261 11,135 Current portion of long-term debt 17,310 16,989 ----------- --------- Total current liabilities 529,570 546,846 Long-term Debt 851,329 851,800 Other Long-term Liabilities 361,345 362,162 Deferred Income Taxes 353,991 348,040 ----------- --------- Total liabilities 2,096,235 2,108,848 ----------- --------- Stockholders' Equity: Preferred Stock, shares issued: none in 2003 and 2002 --- --- Common Stock, shares issued: 149,528,776 in 2003 and 149,528,564 in 2002 149,528 149,528 Class B Common Stock, shares issued: 30,422,096 in 2003 and 30,422,308 in 2002 30,422 30,422 Additional paid-in capital 411 593 Unearned ESOP compensation (11,975) (12,774) Retained earnings 3,046,164 2,991,090 Treasury-Common Stock shares at cost: 48,778,036 in 2003 and 45,730,735 in 2002 (2,008,336) (1,808,227) Accumulated other comprehensive income 10,103 21,071 ------------ ---------- Total stockholders' equity 1,216,317 1,371,703 ----------- ---------- Total liabilities and stockholders' equity $ 3,312,552 $ 3,480,551 =========== ========== The accompanying notes are an integral part of these balance sheets.

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HERSHEY FOODS CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands of dollars)

For the Three Months Ended -------------------------- March 30, March 31, 2003 2002 ---- ----- Cash Flows Provided from (Used by) Operating Activities Net Income $ 97,558 $ 87,045 Adjustments to Reconcile Net Income to Net Cash Provided from Operations: Depreciation and amortization 43,801 45,632 Deferred income taxes 5,735 15,891 Business realignment initiatives - 5,698 Changes in assets and liabilities: Accounts receivable - trade 74,973 69,500 Inventories (294) (44,122) Accounts payable (2,778) 29,283 Other assets and liabilities (81,370) (68,499) --------- -------- Net Cash Flows Provided from Operating Activities 137,625 140,428 --------- -------- Cash Flows Provided from (Used by) Investing Activities Capital additions (36,604) (17,405) Capitalized software additions (3,430) (2,297) --------- -------- Net Cash Flows (Used by) Investing Activities (40,034) (19,702) --------- -------- Cash Flows Provided from (Used by) Financing Activities Net increase (decrease) in short-term debt (874) 40 Repayment of long-term debt (199) (214) Cash dividends paid (42,484) (40,500) Exercise of stock options 9,109 55,569 Incentive plan transactions (29,662) (49,742) Repurchase of Common Stock (187,148) - --------- -------- Net Cash Flows (Used by) Financing Activities (251,258) (34,847) --------- -------- Increase (Decrease) in Cash and Cash Equivalents (153,667) 85,879 Cash and Cash Equivalents, beginning of period 297,743 134,147 --------- -------- Cash and Cash Equivalents, end of period $ 144,076 $ 220,026 ======== ======== Interest Paid $ 23,287 $ 23,766 ======== ======== Income Taxes Paid $ 16,670 $ 1,342 ======== ======== The accompanying notes are an integral part of these statements.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Three Months Ended -------------------------- March 30, March 31, 2003 2002 ---- ---- (in thousands of dollars except per share amounts) Net income, as reported $ 97,558 $ 87,045 Deduct: Total stock-based employee compensation expense determined under fair value method, net of related tax effects (3,685) (3,075) ------- ------- Pro forma net income $ 93,873 $ 83,970 ======= ======= Earnings per share: Basic - as reported $ .73 $ .64 ======= ======= Basic - pro forma $ .70 $ .61 ======= ======= Diluted - as reported $ .73 $ .63 ======= ======= Diluted - pro forma $ .70 $ .61 ======= =======

For the Three Months Ended -------------------------- March 30, 2003 March 31, 2002 -------------- ------------- (in thousands of dollars) Interest expense $ 16,238 $ 16,573 Interest income (1,001) (779) Capitalized interest (626) (329) ------- ------- Interest expense, net $ 14,611 $ 15,465 ======= =======

For the Three Months Ended -------------------------- March 30, 2003 March 31, 2002 -------------- -------------- (in thousands of dollars except per share amounts) Net income $ 97,558 $ 87,045 ========= ======== Weighted-average shares-basic 133,366 136,707 Effect of dilutive securities: Employee stock options 808 1,431 Performance and restricted stock units 54 81 --------- --------- Weighted-average shares - diluted 134,228 138,219 ========= ========= Net income per share - basic $ 0.73 $ 0.64 ========= ======== Net income per share-diluted $ 0.73 $ 0.63 ========= ========