|
|
For
the Three Months Ended
|
|
|
March
30,
2008
|
|
April
1,
2007
|
Weighted-average
fair value of options granted (per share)
|
|
$ 6.21
|
|
$ 12.43
|
Intrinsic
value of options exercised (in millions of dollars)
|
|
$ .5
|
|
$ 20.5
|
·
|
As
of March 30, 2008, the aggregate intrinsic value of options outstanding
was $41.1 million and the aggregate intrinsic value of options
exercisable was $33.2 million.
|
·
|
As
of March 30, 2008, there was $55.7 million of total unrecognized
compensation cost related to non-vested stock option compensation
arrangements granted under our stock option plans. That cost is expected
to be recognized over a weighted-average period of 2.9
years.
|
Performance
Stock Units and Restricted Stock Units
A summary
of the status of our performance stock units and restricted stock units as of
March 30, 2008, and the change during 2008 is presented below:
Performance
Stock Units and Restricted Stock Units
|
For
the Three
Months
Ended
March
30,
2008
|
|
Weighted-average
grant date
fair
value for equity awards or
market
value for liability awards
|
Outstanding
at beginning of year
|
691,032
|
|
$38.14
|
Granted
|
325,614
|
|
$39.19
|
Performance
assumption change
|
—
|
|
—
|
Vested
|
(253,698)
|
|
$39.56
|
Forfeited
|
(4,425)
|
|
$41.43
|
Outstanding
as of March 30, 2008
|
758,523
|
|
$38.40
|
As of
March 30, 2008, there was $16.5 million of unrecognized compensation cost
relating to non-vested performance stock units and restricted stock
units. We expect to recognize that cost over a weighted-average
period of 2.9 years.
|
|
For
the Three Months Ended
|
|
|
March
30,
2008
|
|
April
1,
2007
|
Intrinsic
value of share-based liabilities paid, combined with the fair value of
shares vested (in millions of dollars)
|
|
$ 8.2
|
|
$ 20.4
|
The
higher 2007 amount was due to the payment of awards earned for the 2004-2006
performance stock unit cycle. In 2008, no payment was made for the 2005-2007
performance stock unit cycle based on the Company’s performance against the two
financial objectives which fell below the threshold levels required to earn an
award.
Deferred
performance stock units, deferred restricted stock units, and directors’ fees
and accumulated dividend amounts representing deferred stock units totaled
421,712 units as of March 30, 2008. Each unit is equivalent to one
share of the Company’s Common Stock.
No stock
appreciation rights were outstanding as of March 30, 2008.
For more
information on our stock compensation plans, refer to the consolidated financial
statements and notes included in our 2007 Annual Report on Form 10-K and our
proxy statement for the 2008 annual meeting of stockholders.
4. INTEREST
EXPENSE
Net
interest expense consisted of the following:
|
|
For
the Three Months Ended
|
|
|
March
30,
2008
|
|
April
1,
2007
|
|
|
(in
thousands of dollars)
|
Interest
expense
|
|
$26,455
|
|
$29,051
|
Interest
income
|
|
(774)
|
|
(761)
|
Capitalized
interest
|
|
(1,295)
|
|
(35)
|
Interest
expense, net
|
|
$24,386
|
|
$28,255
|
5. BUSINESS
REALIGNMENT INITIATIVES
In
February 2007, we announced a comprehensive, three-year supply chain
transformation program (the “global supply chain transformation program”) and,
in December 2007, we initiated a business realignment program associated with
our business in Brazil (together, “the 2007 business realignment
initiatives”).
When
completed, the global supply chain transformation program will greatly enhance
our manufacturing, sourcing and customer service capabilities, reduce
inventories resulting in improvements in working capital and generate
significant resources to invest in our growth initiatives. This
program will provide for accelerated marketplace momentum within our core U.S.
business, creation of innovative new product platforms to meet customer needs
and disciplined global expansion. Under the program, which is being
implemented in stages over three years, we will significantly increase
manufacturing capacity utilization by reducing the number of production lines by
more than one-third, outsource production of low value-added items and construct
a flexible, cost-effective production facility in Monterrey, Mexico to meet
current and emerging marketplace needs. The program will result in a
total net reduction of 1,500 positions across our supply chain over the
three-year implementation period.
The
estimated pre-tax cost of the program is from $525 million to $575 million over
three years. The total includes from $475 million to $525 million in
business realignment costs and approximately $50 million in project
implementation costs. The costs will be incurred primarily in 2007
and 2008. Total costs of $400.0 million were recorded in 2007 and
total costs of $26.4 million were recorded during the first three months of 2008
for this program.
In 2001,
we acquired a small business in Brazil, Hershey do Brasil, which has not gained
profitable scale or adequate market distribution. In an effort to improve the
performance of this business, in January 2008 Hershey do Brasil entered into a
cooperative agreement with Bauducco. In the fourth quarter of 2007 we recorded a
goodwill impairment charge of $12.3
million associated with Hershey do Brasil, along with a business realignment
charge of $.3 million primarily related to employee separation costs. Business
realignment charges of $4.3 million were recorded in the first three months of
2008.
Charges
(credits) associated with business realignment initiatives recorded during the
three-month periods ended March 30, 2008 and April 1, 2007 were as
follows:
|
|
For
the Three Months Ended
|
|
|
|
March
30,
2008
|
|
|
April
1,
2007
|
|
|
|
(in
thousands of dollars)
|
|
|
|
|
|
|
|
|
Cost
of sales - 2007 business realignment initiatives
|
|
$ |
25,154 |
|
|
$ |
9,859 |
|
|
|
|
|
|
|
|
|
|
Selling,
marketing and administrative - 2007 business realignment
initiatives
|
|
|
1,434 |
|
|
|
2,986 |
|
|
|
|
|
|
|
|
|
|
Business
realignment and impairment charges, net:
|
|
|
|
|
|
|
|
|
Global
supply chain transformation program
|
|
|
|
|
|
|
|
|
Gains
on sale of fixed assets
|
|
|
(13,900 |
) |
|
|
— |
|
Fixed
asset impairments and plant closure expenses
|
|
|
9,777 |
|
|
|
26,220 |
|
Employee
separation costs
|
|
|
3,889 |
|
|
|
1,325 |
|
Brazilian
business realignment
|
|
|
|
|
|
|
|
|
Employee
separation costs
|
|
|
1,860 |
|
|
|
— |
|
Fixed
asset impairments
|
|
|
722 |
|
|
|
— |
|
Contract
terminations and other exit costs
|
|
|
1,737 |
|
|
|
— |
|
Total
business realignment and impairment charges, net
|
|
|
4,085 |
|
|
|
27,545 |
|
|
|
|
|
|
|
|
|
|
Total
net charges associated with 2007 business realignment
initiatives
|
|
$ |
30,673 |
|
|
$ |
40,390 |
|
The
charge of $25.2 million recorded in cost of sales during the first quarter of
2008 related primarily to the accelerated depreciation of fixed assets over a
reduced estimated remaining useful life and start-up costs associated with the
global supply chain transformation program. The $1.4 million recorded
in selling, marketing and administrative expenses related primarily to project
administration for the global supply chain transformation program. In
determining the costs related to fixed asset impairments, fair value was
estimated based on the expected sales proceeds. The $13.9 million
gains on sale of fixed assets resulted from the receipt of proceeds in excess of
the carrying value primarily from the sale of a warehousing and distribution
facility. The $9.8 million of fixed asset impairments and plant closure expenses
for 2008 related primarily to the preparation of plants for sale and line
removal costs. Certain real estate with a carrying value of $28.8 million was
being held for sale as of March 30, 2008. The global supply chain
transformation program employee separation costs were related to involuntary
terminations at the North American manufacturing facilities which are being
closed. The global supply chain transformation program had identified
six manufacturing facilities which would be closed. As of March 30,
2008, the facility located in Dartmouth, Nova Scotia has been closed and sold.
The facilities located in Naugatuck, Connecticut; Oakdale, California; and
Montreal, Quebec have been closed and are being held for sale. The facilities in
Reading, Pennsylvania and Smiths Falls, Ontario are being held and used pending
closure, following which they will be offered for sale.
The
charges for the Brazilian business realignment were related to costs for
involuntary terminations and costs associated with office consolidation related
to the cooperative agreement with Bauducco.
The
charge of $9.9 million recorded in cost of sales during the first three months
of 2007 for the global supply chain transformation program related to the
accelerated depreciation of fixed assets over a reduced estimated remaining
useful life. The $3.0 million recorded in selling, marketing and
administrative expenses related primarily to project implementation costs for
the global supply chain transformation program. The $26.2 million of fixed asset
impairments and plant closure expenses for 2007 related primarily to fixed asset
impairments at three of the plants being closed. In determining the costs
related to fixed asset impairments, fair value was estimated based on the
expected sales proceeds. The employee separation costs included
$1.3 million for involuntary terminations.
The March
30, 2008 liability balance relating to the 2007 business realignment initiatives
was $57.6 million for employee separation costs. During the first
three months of 2008, we made payments against the liabilities recorded for the
2007 business realignment initiatives of $18.1 million principally related to
employee separation costs.
6. EARNINGS
PER SHARE
In
accordance with Statement of Financial Accounting Standards No. 128, Earnings Per Share, we
compute Basic and Diluted Earnings Per Share based on the weighted-average
number of shares of the Common Stock and the Class B Common Stock outstanding as
follows:
|
|
For
the Three Months Ended
|
|
|
|
March
30,
2008
|
|
|
April
1,
2007
|
|
|
|
(in
thousands except per share amounts)
|
|
|
|
|
|
Net
income
|
|
$ |
63,245 |
|
|
$ |
93,473 |
|
|
|
|
|
|
|
|
|
|
Weighted-average
shares - Basic
|
|
|
|
|
|
|
|
|
Common
Stock
|
|
|
166,771 |
|
|
|
169,836 |
|
Class
B Common Stock
|
|
|
60,806 |
|
|
|
60,816 |
|
Total
weighted-average shares - Basic
|
|
|
227,577 |
|
|
|
230,652 |
|
Effect
of dilutive securities:
|
|
|
|
|
|
|
|
|
Employee
stock options
|
|
|
976 |
|
|
|
2,403 |
|
Performance
and restricted stock units
|
|
|
373 |
|
|
|
653 |
|
Weighted-average
shares - Diluted
|
|
|
228,926 |
|
|
|
233,708 |
|
Earnings
Per Share - Basic
|
|
|
|
|
|
|
|
|
Class
B Common Stock
|
|
$ |
.26 |
|
|
$ |
.37 |
|
Common
Stock
|
|
$ |
.29 |
|
|
$ |
.42 |
|
Earnings
Per Share - Diluted
|
|
|
|
|
|
|
|
|
Class
B Common Stock
|
|
$ |
.26 |
|
|
$ |
.37 |
|
Common
Stock
|
|
$ |
.28 |
|
|
$ |
.40 |
|
The Class
B Common Stock is convertible into Common Stock on a share for share basis at
any time. In accordance with proposed Financial Accounting Standards Board
(“FASB”) Staff Position No. FAS 128-a, Computational Guidance for Computing
Diluted EPS under the Two-Class Method, the calculation of earnings per
share-diluted for the Class B Common Stock was performed using the two-class
method and the calculation of earnings per share-diluted for the Common Stock
was performed using the if-converted method.
For the
three month period ended March 30, 2008, 12.8 million stock options were not
included in the diluted earnings per share calculation because the effect would
have been antidilutive. In the first quarter of 2007, 3.8 million stock
options were not included in the diluted earnings per share calculation because
the effect would have been antidilutive.
7. DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES
We
account for derivative instruments in accordance with Statement of Financial
Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities, as amended (“SFAS No.
133”). SFAS No. 133 requires us to recognize all derivative
instruments at fair value. We classify the derivatives as assets or liabilities
on the balance sheet. As of March 30, 2008 and April 1, 2007, all of our
derivative instruments were designated as cash flow hedges.
Summary
of Activity
Our cash
flow hedging derivative activity during the three months ended March 30, 2008
and April 1, 2007 was as follows:
|
For
the Three Months Ended
|
|
March
30,
2008
|
|
|
April
1,
2007
|
|
(in
millions of dollars)
|
Net
after-tax gains on cash flow hedging derivatives
|
$ |
21.6
|
|
|
$ |
5.9
|
Reclassification
adjustment of gains from accumulated other comprehensive income to income,
net of tax
|
|
6.5 |
|
|
|
.1
|
Hedge
ineffectiveness losses recognized in cost of sales, before
tax
|
|
(.1 |
) |
|
|
–
|
·
|
|
Net
gains and losses on cash flow hedging derivatives were primarily
associated with commodities futures contracts in 2008 and with commodities
futures contracts and interest rate swap agreements in
2007.
|
·
|
|
Reclassification
adjustments from accumulated other comprehensive income (loss) to income
related to gains or losses on commodities futures contracts were reflected
in cost of sales. Reclassification adjustments for gains on
interest rate swaps were reflected as an adjustment to interest
expense.
|
·
|
|
We
recognized no components of gains or losses on cash flow hedging
derivatives in income due to excluding such components from the hedge
effectiveness assessment.
|
The
amount of net gains on cash flow hedging derivatives, including foreign exchange
forward contracts, interest rate swap agreements and commodities futures
contracts, expected to be reclassified into earnings in the next twelve months
was approximately $16.2 million after tax as of March 30, 2008. This amount was
primarily associated with commodities futures contracts.
For more
information, refer to the consolidated financial statements and notes included
in our 2007 Annual Report on Form 10-K.
8. COMPREHENSIVE
INCOME
A summary
of the components of comprehensive income (loss) is as follows:
|
|
For
the Three Months Ended
March
30, 2008
|
|
|
|
Pre-Tax
Amount
|
|
|
Tax
(Expense) Benefit
|
|
|
After-Tax
Amount
|
|
|
|
(in
thousands of dollars)
|
|
Net
income
|
|
|
|
|
|
|
|
$ |
63,245 |
|
|
|
|
|
|
|
|
|
|
|
|
Other
comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation adjustments
|
|
$ |
(3,882 |
) |
|
$ |
— |
|
|
|
(3,882 |
) |
Pension
and post-retirement benefit plans
|
|
|
94 |
|
|
|
(43 |
) |
|
|
51 |
|
Cash
flow hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains
on cash flow hedging derivatives
|
|
|
33,739 |
|
|
|
(12,143 |
) |
|
|
21,596 |
|
Reclassification
adjustments
|
|
|
(10,197 |
) |
|
|
3,691 |
|
|
|
(6,506 |
) |
Total
other comprehensive income
|
|
$ |
19,754 |
|
|
$ |
(8,495 |
) |
|
|
11,259 |
|
Comprehensive
income
|
|
|
|
|
|
|
|
|
|
$ |
74,504 |
|
|
|
For
the Three Months Ended
April
1, 2007
|
|
|
|
Pre-Tax
Amount
|
|
|
Tax
(Expense) Benefit
|
|
|
After-Tax
Amount
|
|
|
|
(in
thousands of dollars)
|
|
Net
income
|
|
|
|
|
|
|
|
$ |
93,473 |
|
|
|
|
|
|
|
|
|
|
|
|
Other
comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation adjustments
|
|
$ |
2,604 |
|
|
$ |
— |
|
|
|
2,604 |
|
Pension
and post-retirement benefit plans
|
|
|
1,412 |
|
|
|
(636 |
) |
|
|
776 |
|
Cash
flow hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains
on cash flow hedging derivatives
|
|
|
9,296 |
|
|
|
(3,368 |
) |
|
|
5,928 |
|
Reclassification
adjustments
|
|
|
(193 |
) |
|
|
74 |
|
|
|
(119 |
) |
Total
other comprehensive income
|
|
$ |
13,119 |
|
|
$ |
(3,930 |
) |
|
|
9,189 |
|
Comprehensive
income
|
|
|
|
|
|
|
|
|
|
$ |
102,662 |
|
The
components of accumulated other comprehensive income (loss) as shown on the
Consolidated Balance Sheets are as follows:
|
|
March
30,
2008
|
|
|
December
31,
2007
|
|
|
|
(in
thousands of dollars)
|
|
Foreign
currency translation adjustments
|
|
$ |
40,928 |
|
|
$ |
44,810 |
|
Pension
and post-retirement benefit plans, net of tax
|
|
|
(79,514 |
) |
|
|
(79,565 |
) |
Cash
flow hedges, net of tax
|
|
|
21,866 |
|
|
|
6,776 |
|
Total
accumulated other comprehensive loss
|
|
$ |
(16,720 |
) |
|
$ |
(27,979 |
) |
9. INVENTORIES
We value
the majority of our 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. Inventories were as follows:
|
|
March
30,
2008
|
|
|
December
31,
2007
|
|
|
|
(in
thousands of dollars)
|
|
Raw
materials
|
|
$ |
279,631 |
|
|
$ |
199,460 |
|
Goods
in process
|
|
|
103,600 |
|
|
|
80,282 |
|
Finished
goods
|
|
|
367,075 |
|
|
|
407,058 |
|
Inventories
at FIFO
|
|
|
750,306 |
|
|
|
686,800 |
|
Adjustment
to LIFO
|
|
|
(130,900 |
) |
|
|
(86,615 |
) |
Total
inventories
|
|
$ |
619,406 |
|
|
$ |
600,185 |
|
The
increase in raw material inventories as of March 30, 2008 resulted from the
timing of deliveries to support manufacturing requirements and higher prices in
2008. The decrease in finished goods inventories was primarily associated with
seasonal sales patterns.
10. SHORT-TERM
DEBT
As a
source of short-term financing, we utilize commercial paper or bank loans with
an original maturity of three months or less. In December 2006, we entered into
a five-year unsecured revolving credit agreement. The credit limit is $1.1
billion with an option to borrow an additional $400 million with the concurrence
of the lenders. During the fourth quarter of 2007, the lenders approved a
one-year extension to the term of this agreement in accordance with our option
under the agreement. These funds may be used for general corporate purposes. Due
to seasonal working capital needs, share repurchases and other business
activities, we expected borrowings to exceed $1.1 billion from time to time.
Therefore, in lieu of increasing the borrowing limit under the five-year credit
agreement, in August 2007, we entered into a new unsecured revolving short-term
credit agreement to borrow up to $300 million. Funds borrowed under the new
short-term credit agreement may be used for general corporate purposes,
including commercial paper backstop. The agreement will expire in August 2008.
These unsecured revolving credit agreements contain certain financial and other
covenants, customary representations, warranties, and events of default. As of
March 30, 2008, we complied with all covenants pertaining to these credit
agreements. There were no significant compensating balance agreements that
legally restricted these funds. For more information, refer to the consolidated
financial statements and notes included in our 2007 Annual Report on Form
10-K.
11. LONG-TERM
DEBT
In May
2006, we filed a shelf registration statement on Form S-3 that registered an
indeterminate amount of debt securities. This registration statement was
effective immediately upon filing under Securities and Exchange Commission
regulations governing “well-known seasoned issuers” (the "WKSI Registration
Statement"). In March 2008, the Company issued $250 million of 5.0% Notes
due April 1, 2013 under the WKSI Registration Statement. The net proceeds
of this debt issuance are being used to repay a portion of the Company’s
outstanding indebtedness under its short-term commercial paper
program.
12. FINANCIAL
INSTRUMENTS
The
carrying amounts of financial instruments including cash and cash equivalents,
accounts receivable, accounts payable and short-term debt approximated fair
value as of March 30, 2008 and December 31, 2007, because of the relatively
short maturity of these instruments.
The
carrying value of long-term debt, including the current portion, was
$1,534.4 million as of March 30, 2008, compared with a fair value of
$1,583.7 million, an increase of $49.3 million over the carrying value,
based on quoted market prices for the same or similar debt issues.
Foreign
Exchange Forward Contracts
The
following table summarizes our foreign exchange activity:
|
March
30, 2008
|
|
Contract
Amount
|
Primary
Currencies
|
|
(in
millions of dollars)
|
|
|
|
Foreign
exchange forward contracts to
purchase
foreign currencies
|
$ 14.5
|
British
pounds
Australian dollars
Euros
|
|
|
|
Foreign
exchange forward contracts to
sell
foreign currencies
|
$ 165.1
|
Canadian
dollars
Mexican
pesos
|
Our
foreign exchange forward contracts mature in 2008 and 2009.
We define
the fair value of foreign exchange forward contracts as the amount of the
difference between contracted and current market foreign currency exchange rates
at the end of the period. On a quarterly basis, we estimate the fair value of
foreign exchange forward contracts by obtaining market quotes for future
contracts with similar terms, adjusted where necessary for maturity differences.
We do not hold or issue financial instruments for trading purposes.
The total
fair value of our foreign exchange forward contracts included in prepaid
expenses and other current assets, accrued liabilities and non-current assets
(liabilities), as appropriate, on the Consolidated Balance Sheets were as
follows:
|
|
March
30,
2008
|
|
|
December
31,
2007
|
|
|
|
(in
millions of dollars)
|
|
Fair
value of foreign exchange forward contracts – asset
(liability)
|
|
$ |
2.0
|
|
|
$ |
(2.1)
|
|
13. FAIR
VALUE ACCOUNTING
In
September 2006, the FASB issued Statement of Financial Accounting Standards No.
157, Fair Value
Measurements (“SFAS No. 157”). SFAS No. 157 applies a consistent
definition to fair value, establishes a framework for measuring fair value in
U.S. generally accepted accounting principles (“GAAP”), and expands disclosures
about fair value measurements.
SFAS No.
157 establishes a fair value measurement hierarchy to price a particular asset
or liability. The fair value of the asset or liability is determined based on
inputs or assumptions that market participants would use in pricing the asset or
liability. These assumptions consist of (1) observable inputs - market data
obtained from independent sources, or (2) unobservable inputs - market data
determined using the company’s own assumptions about valuation.
SFAS No.
157 establishes a fair value hierarchy to prioritize the inputs to valuation
techniques, with the highest priority being given to Level 1 inputs and the
lowest priority to Level 3 inputs, as defined below:
·
|
Level
1 Inputs – quoted prices in active markets for identical assets or
liabilities;
|
·
|
Level
2 Inputs – quoted prices for similar assets or liabilities in active
markets; quoted prices for identical or similar instruments in markets
that are not active; inputs other than quoted prices that are observable;
and inputs that are derived from or corroborated by observable market data
by correlation; and
|
·
|
Level
3 Inputs – unobservable inputs used to the extent that observable inputs
are not available. These reflect the entity’s own assumptions about the
assumptions that market participants would use in pricing the asset or
liability.
|
In
addition, SFAS No. 157 requires disclosures about the use of fair value to
measure assets and liabilities to enable the assessment of inputs used to
develop fair value measures, and for unobservable inputs, to determine the
effects of the measurements on earnings.
Effective
January 1, 2008, we partially adopted SFAS No. 157 and have applied its
provisions to financial assets and liabilities that are recognized or disclosed
at fair value on a recurring basis (at least annually). We have not yet adopted
SFAS No. 157 for nonfinancial assets and liabilities, in accordance with FASB
Staff Position 157-2, Effective Date of FASB Statement No.
157 (“FSP 157-2”). FSP 157-2 defers the effective date of SFAS No. 157 to
January 1, 2009, for nonfinancial assets and nonfinancial liabilities, except
for items that are recognized or disclosed on a recurring basis.
We use
certain derivative instruments from time to time to manage interest rate,
foreign currency exchange rate and commodity market price risk exposures, all of
which are recorded at fair value based on quoted market prices or
rates.
A summary
of our cash flow hedging derivative assets and liabilities measured at fair
value on a recurring basis as of March 30, 2008, is as follows:
Description
|
|
Fair
Value as
of
March 30,
2008
|
|
|
Quoted
Prices in
Active
Markets
of
Identical
Assets
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level
3)
|
|
|
|
(in
thousands of dollars)
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flow hedging derivatives
|
|
$ |
2,022 |
|
|
$ |
— |
|
|
$ |
2,022 |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flow hedging derivatives
|
|
$ |
3,361 |
|
|
$ |
3,361 |
|
|
$ |
— |
|
|
$ |
— |
|
As of
March 30, 2008, cash flow hedging derivative assets were principally related to
the fair value of foreign exchange forward contracts. We define the fair value
of foreign exchange forward contracts as the amount of the difference between
the contracted and current market foreign currency exchange rates at the end of
the period. We estimate the fair value of foreign exchange forward contracts on
a quarterly basis by obtaining market quotes for future contracts with similar
terms, adjusted where necessary for maturity differences.
As of
March 30, 2008, cash flow hedging derivative liabilities were related to cash
transfers payable on commodities futures contracts and options reflecting the
change in quoted market prices on the last trading day for the period. We
account for commodities futures contracts in accordance with SFAS No. 133. We
make or receive cash transfers to or from commodity futures brokers on a daily
basis reflecting changes in the value of futures contracts on the New York Board
of Trade or various other exchanges. These changes in value represent unrealized
gains and losses.
In
February 2007, the FASB issued Statement of Financial Accounting Standards No.
159, The Fair Value Option for
Financial Assets and Financial Liabilities—Including an amendment of FASB
Statement No. 115 (“SFAS No. 159”). SFAS No. 159 permits entities to
choose to measure many financial instruments and other items at fair value. The
objective of SFAS No. 159 is to improve financial reporting by providing
entities with the opportunity to mitigate volatility in reported earnings caused
by measuring related assets and liabilities differently without having to apply
complex hedge accounting provisions.
As of
January 1, 2008, we elected not to adopt the fair value option under SFAS No.
159 for any financial instruments or other items.
14. INCOME
TAXES
During
the first quarter of 2008, the U.S. Internal Revenue Service commenced its audit
of our U.S. income tax returns for 2005 and 2006. It is reasonably possible that
this audit will be completed in 2009, but it is not possible at this time to
estimate the resolution and any possible refunds or payments.
15.
PENSION AND OTHER POST-RETIREMENT BENEFIT PLANS
Components
of net periodic benefits (income) cost consisted of the following:
|
|
Pension
Benefits
|
|
|
Other
Benefits
|
|
|
|
For
the Three Months Ended
|
|
|
|
March
30,
2008
|
|
|
April
1,
2007
|
|
|
March
30,
2008
|
|
|
April
1,
2007
|
|
|
|
(in
thousands of dollars)
|
|
Service
cost
|
|
$ |
8,025 |
|
|
$ |
11,157 |
|
|
$ |
487 |
|
|
$ |
1,172 |
|
Interest
cost
|
|
|
15,013 |
|
|
|
14,668 |
|
|
|
5,422 |
|
|
|
4,747 |
|
Expected
return on plan assets
|
|
|
(27,333 |
) |
|
|
(28,588 |
) |
|
|
— |
|
|
|
— |
|
Amortization
of prior service cost
|
|
|
319 |
|
|
|
379 |
|
|
|
(114 |
) |
|
|
(39 |
) |
Recognized
net actuarial (gain) loss
|
|
|
(47 |
) |
|
|
756 |
|
|
|
53 |
|
|
|
542 |
|
Administrative
expenses
|
|
|
88 |
|
|
|
173 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
net periodic benefits (income) cost
reflected in earnings
|
|
$ |
(3,935 |
) |
|
$ |
(1,455 |
) |
|
$ |
5,848 |
|
|
$ |
6,422 |
|
We made
contributions of $3.3 million and $5.9 million to the pension plans and
other benefits plans, respectively, during the first quarter of
2008. In the first quarter of 2007, we made contributions of
$5.1 million and $4.5 million to our pension and other benefits plans,
respectively. The contributions in 2008 and 2007 also included
benefit payments from our non-qualified pension plans and post-retirement
benefit plans.
In the
first quarter of 2008, there was net periodic pension benefits income of
$3.9 million, compared with net periodic benefits income of
$1.5 million in the first quarter of 2007. The increased net
periodic pension benefits income primarily reflected lower service cost
resulting from a reduction in employment levels under the global supply chain
transformation program.
For 2008,
there are no minimum funding requirements for the domestic plans and minimum
funding requirements for the non-domestic plans are not
material. During the remainder of 2008, we anticipate contributions
to our pension plans of $25.0 million to $35.0 million which includes benefit
payments from our non-qualified plans.
For more
information, refer to the consolidated financial statements and notes included
in our 2007 Annual Report on Form 10-K.
16. SHARE
REPURCHASES
Repurchases
and Issuances of Common Stock
A summary
of cumulative share repurchases and issuances is as follows:
|
|
For
the Three Months Ended
March
30, 2008
|
|
|
|
Shares
|
|
|
Dollars
|
|
|
(in
thousands)
|
|
Shares
repurchased in the open market under pre-approved
share repurchase programs
|
|
|
— |
|
|
$ |
— |
|
Shares
repurchased to replace Treasury Stock issued for stock
options
and incentive compensation
|
|
|
506,000 |
|
|
|
18,330 |
|
Total
share repurchases
|
|
|
506,000 |
|
|
|
18,330 |
|
Shares
issued for stock options and incentive compensation
|
|
|
(477,271 |
) |
|
|
(15,564 |
) |
Net
change
|
|
|
28,729 |
|
|
$ |
2,766 |
|
·
|
In
December 2006, our Board of Directors approved an additional $250 million
share repurchase program. As of March 30, 2008, $100.0 million remained
available for repurchases of Common Stock under this
program.
|
17. PENDING
ACCOUNTING PRONOUNCEMENTS
In
December 2007, the FASB issued Statement of Financial Accounting Standards No.
141 (revised 2007), Business
Combinations (“SFAS No. 141R”), and Statement of Financial Accounting
Standards No. 160, Noncontrolling Interests in
Consolidated Financial Statements—an amendment of ARB No. 51 (“SFAS No.
160”). Both of these new standards are effective for fiscal years beginning
after December 15, 2008, with early adoption prohibited. These standards
significantly change the accounting for and reporting of future business
combinations and noncontrolling interests (minority interests) in consolidated
financial statements. We are required to adopt these standards on January 1,
2009 and are currently evaluating their impact on our consolidated financial
statements upon adoption.
SFAS
No. 141R establishes principles and requirements for how the acquirer of a
business recognizes and measures in its financial statements the identifiable
assets acquired, the liabilities assumed, and any noncontrolling interest in the
acquired business. SFAS No. 141R also provides guidance for recognizing and
measuring the goodwill acquired in the business combination and determines what
information to disclose to enable users of the financial statements to evaluate
the nature and financial effects of the business combination.
SFAS No.
160 establishes new accounting and reporting standards for the noncontrolling
interest in a subsidiary and for the deconsolidation of a subsidiary and
requires the noncontrolling interest to be reported as a component of equity. In
addition, changes in a parent’s ownership interest while the parent retains its
controlling interest will be accounted for as equity transactions, and any
retained noncontrolling equity investment upon the deconsolidation of a
subsidiary will be initially measured at fair value. Disclosures that clearly
identify and distinguish between the interests of the parent and the interests
of noncontrolling owners will be required.
In March
2008, the FASB issued Statement of Financial Accounting Standards No. 161, Disclosures about Derivative
Instruments and Hedging Activities—an amendment of FASB Statement No. 133
(“SFAS No. 161”). SFAS No. 161 requires enhanced disclosures about an entity’s
derivative and hedging activities. Entities will be required to provide enhanced
disclosures about how and why an entity uses derivative instruments, how these
instruments are accounted for, and how they affect the entity’s financial
position, financial performance and cash flows. This new standard is effective
for our Company as of January 1, 2009 and we are currently evaluating the impact
on disclosures associated with our derivative and hedging
activities.
Item
2. Management's Discussion and Analysis of Results of Operations and
Financial Condition
SUMMARY
OF OPERATING RESULTS
Analysis
of Selected Items from Our Income Statement
|
For
the Three Months Ended
|
|
|
|
March
30,
2008
|
|
April
1,
2007
|
|
Percent
Change
Increase
(Decrease)
|
|
|
|
(in
millions except per
share
amounts)
|
|
|
Net
Sales
|
$ 1,160.3
|
|
$ 1,153.1
|
|
0.6%
|
|
|
Cost
of Sales
|
783.9
|
|
739.1
|
|
6.1%
|
|
|
Gross
Profit
|
376.4
|
|
414.0
|
|
(9.1)%
|
|
|
Gross
Margin
|
32.4%
|
|
35.9%
|
|
|
|
|
SM&A
Expense
|
249.9
|
|
216.4
|
|
15.5%
|
|
|
SM&A
Expense as a percent of sales
|
21.5%
|
|
18.8%
|
|
|
|
|
Business
Realignment Charge, net
|
4.1
|
|
27.5
|
|
(85.2)%
|
|
|
EBIT
|
122.4
|
|
170.1
|
|
(28.0)%
|
|
|
EBIT
Margin
|
10.6%
|
|
14.7%
|
|
|
|
|
Interest
Expense, net
|
24.4
|
|
28.3
|
|
(13.7)%
|
|
|
Provision
for Income Taxes
|
34.8
|
|
48.3
|
|
(28.0)%
|
|
|
Effective
Income Tax Rate
|
35.5%
|
|
34.1%
|
|
|
|
|
Net
Income
|
$ 63.2
|
|
$ 93.5
|
|
(32.3)%
|
|
|
Net
Income Per Share-Diluted
|
$ .28
|
|
$ .40
|
|
(30.0)%
|
|
|
Results of Operations -
First Quarter 2008 vs. First Quarter 2007
U.S.
Price Increases
In April
2007, we announced an increase of approximately four percent to five percent in
the wholesale prices of our domestic confectionery line, effective
immediately. The price increase applied to our standard bar,
king-size bar, 6-pack and vending lines. These products represent approximately
one-third of our U.S. confectionery portfolio.
In
January 2008, we announced another increase in the wholesale prices of our
domestic confectionery line, effective immediately. This price increase also
applied to our standard bar, king-size bar, 6-pack and vending lines and
represented a weighted average increase of approximately thirteen percent on
these items. These price changes approximated a three percent price increase
over our entire domestic product line. We implemented both pricing actions to
help partially offset increases in input costs, including raw materials, fuel,
utilities and transportation. The 2008 price increases had minimal impact on net
sales for the first quarter of 2008.
Net
Sales
Net sales
for the first quarter of 2008 were slightly higher than the comparable period of
2007 as favorable price realization primarily from price increases implemented
during 2007, incremental sales from the Godrej Hershey Ltd. acquisition, and a
favorable foreign currency exchange rate were substantially offset by sales
volume decreases primarily in the United States. The Godrej Hershey Ltd.
business increased net sales by $20.3 million, or 1.8%.
Key
Marketplace Metrics
Consumer
takeaway increased 14.8% during the first quarter of 2008 compared with the same
period of 2007. However, the first quarter of 2008 benefited from an
early Easter season. Excluding seasonal sales, consumer takeaway increased 1.8%.
Consumer takeaway is provided for channels of distribution accounting for
approximately 80% of our U.S. confectionery retail business. These channels of
distribution include food, drug, mass merchandisers, including Wal-Mart Stores,
Inc., and convenience stores.
Market
share in measured channels declined by 0.8 share points during the first quarter
of 2008. The change in market share is provided for measured channels which
include sales in the food, drug, convenience store and mass merchandiser classes
of trade, excluding sales of Wal-Mart Stores, Inc.
Cost
of Sales and Gross Margin
Business
realignment charges of $25.2 million were included in cost of sales in the first
quarter of 2008 compared with $9.9 million in the first quarter of
2007. The remainder of the cost of sales increase was primarily
associated with higher input costs and business acquisitions, offset partially
by the impact of the sales volume decrease primarily in the United States and
improved supply chain productivity.
Approximately
one third of the gross margin decline was attributable to the impact of business
realignment initiatives recorded in 2008 compared with 2007. The rest
of the decline resulted from higher input costs which were only partially offset
by increased price realization and improved supply chain productivity. The
acquisition of the Godrej Hershey Ltd. business also contributed to the decline
in gross margin.
Selling,
Marketing and Administrative
Selling,
marketing and administrative expenses increased primarily as a result of higher
administrative, selling and advertising expenses. Higher administrative and
selling costs were principally associated with employee-related expenses from
the expansion of our international businesses, including the acquisition of
Godrej Hershey Ltd., investments to improve our selling capabilities in the
United States and the earlier granting of stock options in 2008 versus 2007.
Expenses of $1.4 million related to our 2007 business realignment initiatives
were included in selling, marketing and administrative expense for the first
quarter of 2008 compared with $3.0 million recorded in the first quarter of
2007.
Business
Realignment Initiatives
Business
realignment charges of $4.1 million were recorded in the first quarter of 2008
associated with the 2007 business realignment initiatives. The
charges were primarily associated with fixed asset impairments, plant closure
expenses, and employee separation and contract termination costs, partially
offset by gains on the sale of fixed assets. Business realignment
charges of $27.5 million were recorded in the first quarter of 2007 primarily
associated with fixed asset impairments and expenses for the closure of certain
manufacturing facilities, along with employee separation costs.
Income
Before Interest and Income Taxes and EBIT Margin
EBIT
decreased in the first quarter of 2008 compared with the first quarter of 2007
as a result of lower gross profit and higher selling, marketing and
administrative expenses. Net pre-tax business realignment charges of $30.7
million were recorded in the first quarter of 2008 compared with $40.4 million
recorded in the first quarter of 2007, a decrease of $9.7 million.
EBIT
margin decreased from 14.7% for the first quarter of 2007 to 10.6% for the first
quarter of 2008. The impact of net business realignment charges in
2008 reduced EBIT margin by 2.6 percentage points and in the first quarter of
2007, reduced EBIT margin by 3.6 percentage points. The remainder of the
decrease resulted from the lower gross margin and higher selling, marketing and
administrative expense as a percentage of sales.
Interest
Expense, Net
Net
interest expense was lower in the first quarter of 2008 than the comparable
period of 2007 primarily reflecting lower interest rates and an increase in
capitalized interest, offset somewhat by higher average short-term borrowings in
2008 compared with 2007.
Income
Taxes and Effective Tax Rate
Our
effective income tax rate was 35.5% for the first quarter of 2008. The impact of
tax rates associated with business realignment and impairment charges recorded
during the quarter increased the effective income tax rate by 0.7 percentage
points. We expect our income tax rate for the full year 2008 to be 36.0%,
excluding the impact of tax benefits associated with business realignment
charges during the year.
Net
Income and Net Income Per Share
Net
Income in the first quarter of 2008 was reduced by $20.7 million, or $0.09 per
share-diluted, and was reduced by $25.3 million, or $0.11 per
share-diluted, in the first quarter of 2007 as a result of net charges
associated with our business realignment initiatives. After considering the
impact of business realignment charges in each period, earnings per
share-diluted in the first quarter of 2008 decreased $0.14 as compared with the
first quarter of 2007.
Liquidity and Capital
Resources
Historically,
our major source of financing has been cash generated from operations. Domestic
seasonal working capital needs, which typically peak during the summer months,
generally have been met by issuing commercial paper. Commercial paper may also
be issued from time to time to finance ongoing business transactions such as the
repayment of long-term debt, business acquisitions and for other general
corporate purposes. During the first three months of 2008, cash and cash
equivalents increased by $23.7 million.
Cash
provided from operations, long-term borrowings and proceeds from the sale of
property, plant and equipment was sufficient to fund the repayment of short-term
debt of $377.0 million, dividend payments of $65.8 million, capital
additions and capitalized software expenditures of $70.7 million and
the repurchase of Common Stock for $18.3 million.
The
increase in cash provided from accounts receivable in the first quarter of 2008
compared with the same period of 2007 resulted from increased cash collections
as a result of the timing of sales in the quarter due to the earlier Easter and
a February buy-in prior to the effective date of price increases.
Cash used
by changes in other assets and liabilities was $92.7 million for the first three
months of 2008 compared with cash used of $32.1 million for the same period of
2007. The increase in the amount of cash used by other assets and liabilities
from 2007 to 2008 primarily reflected the impact of business realignment
initiatives, the exercise of stock options, employee benefits and
payroll.
During
the first quarter of 2008, Hershey do Brasil entered into a cooperative
agreement with Bauducco. We received cash of $2.0 million from Bauducco and
recorded an intangible asset of $13.7 million related to the agreement. We will
maintain a 51% controlling interest in Hershey do Brasil.
Proceeds
from the sale of manufacturing and distribution facilities under the global
supply chain transformation program were $44.3 million in the first quarter of
2008.
A
receivable of approximately $17.3 million was included in prepaid expenses and
other current assets as of March 30, 2008 and $17.7 million as of December
31, 2007 related to the recovery of damages from a product recall and temporary
plant closure in Canada. The decrease primarily resulted from
currency exchange rate fluctuations. The product recall during the fourth
quarter of 2006 was caused by a contaminated ingredient purchased from an
outside supplier with whom we have filed a claim for damages and are currently
in litigation.
Interest
paid was $45.3 million during the first three months of 2008 versus $52.5
million for the comparable period of 2007. The decrease in interest
paid resulted primarily from a bond maturity in the first quarter of
2007. Income taxes paid were $5.8 million during the first three
months of 2008 versus $9.8 million for the comparable period of
2007. The decrease in taxes paid in 2008 was primarily related to
lower extension payments for 2008 income taxes.
The ratio
of current assets to current liabilities increased to 1.1:1.0 as of March 30,
2008 from 0.9:1.0 as of December 31, 2007. The capitalization ratio (total
short-term and long-term debt as a percent of stockholders' equity, short-term
and long-term debt) decreased to 77% as of March 30, 2008 from 78% as of
December 31, 2007.
Generally,
our short-term borrowings are in the form of commercial paper or bank loans with
an original maturity of three months or less. In December 2006, we entered into
a five-year credit agreement establishing an unsecured revolving credit facility
to borrow up to $1.1 billion with the option to increase borrowings by an
additional $400 million with the concurrence of the lenders. During the
fourth quarter of 2007, the lenders approved a one-year extension to the term of
this agreement in accordance with our option under the agreement. We may use
these funds for general corporate purposes. Due to seasonal working capital
needs, share repurchases and other business activities, we expected borrowings
to exceed $1.1 billion from time to time. Therefore, in lieu of increasing the
borrowing limit under the five-year credit agreement, in August 2007, we entered
into a new unsecured revolving short-term credit agreement to borrow up to $300
million. Funds borrowed under the new short-term credit agreement may be used
for general corporate purposes, including commercial paper
backstop. The agreement will expire in August 2008.
In March
2008, the Company issued $250 million of 5.0% Notes due April 1, 2013 under the
WKSI Registration Statement. The net proceeds of this debt issuance are being
used to repay a portion of the Company’s outstanding indebtedness under its
short-term commercial paper program.
Outlook
The
outlook section contains a number of forward-looking statements, all of which
are based on current expectations. Actual results may differ
materially. Refer to the Safe Harbor Statement below as well as Risk
Factors and other information
contained in our 2007 Annual Report on Form 10-K for information concerning the
key risks to achieving future performance goals.
Our
current business environment is characterized by significantly higher commodity
costs and increased competitive activity. For the full year 2008, we expect
increases in input costs versus 2007 of approximately $100 million, reducing
gross margin by 200 basis points. We will also incur higher costs for increased
investment in brand support and selling capabilities in the United States, while
we are taking steps to enhance product innovation across our portfolio. We will
also be continuing to invest in key international markets, particularly China
and India.
To offset
higher input costs, we have increased the wholesale prices of our domestic
confectionery line and are implementing aggressive productivity and cost savings
initiatives in addition to those already underway as part of our global supply
chain transformation program. However, price increases and productivity
improvements will only partly offset input cost increases and expenses
associated with investment spending plans, resulting in lower EBIT and EPS,
excluding items affecting comparability.
We expect
consolidated net sales to grow 3% to 4% in 2008. We have introduced Hershey’s Bliss™ and Starbucks® branded
chocolates and will introduce Signatures packaged candy
later this year to more fully participate in the rapidly growing premium and
trade-up segments of the chocolate category in the United States. For the
remainder of the Americas, we expect increases in net sales from our businesses
in Canada, Mexico, and Brazil, along with incremental sales from the Godrej
Hershey Ltd. acquisition.
For 2008,
we expect total pre-tax business realignment and impairment charges for our
global supply chain transformation program and restructuring our business in
Brazil to be in the range of $140 to $160 million. We expect costs of
approximately $85 million to be included in cost of sales, primarily for
accelerated depreciation, and approximately $20 million to be included in
selling, marketing and administrative expenses for start up costs and program
management. The remainder of these costs will be included in business
realignment and impairment charges. Total charges associated with our business
realignment initiatives in 2008 are expected to reduce earnings per
share-diluted by $0.37 to $0.42.
As a
result of higher input costs and increased investment in trade and consumer
promotional programs and advertising, along with investment in our international
businesses, we expect EBIT to decrease in 2008, excluding the impact of business
realignment and impairment charges. We expect EBIT margin to decline due to
investments in advertising, selling capabilities and building infrastructure for
our international businesses.
Business
realignment and impairment charges associated with our global supply chain
transformation program and the restructuring of our business in Brazil will
reduce net income and earnings per share in 2008. Excluding the impact of these
business realignment initiatives, net income is expected to decline reflecting
the increased investments in our businesses. As a result, earnings per
share-diluted excluding items affecting comparability is expected to be within
the $1.85 to $1.90 range for 2008.
A
reconciliation of GAAP and non-GAAP items to the Company’s earnings per
share-diluted outlook is as follows:
3
|
|
|
2008
|
|
|
Expected
EPS-diluted in accordance with GAAP
|
$1.43-1.53
|
Total
business realignment and impairment charges
|
$0.37-0.42
|
|
|
Non-GAAP
expected EPS-diluted excluding items affecting
comparability
|
$1.85-1.90
|
We
believe that the disclosure of non-GAAP expected EPS-diluted excluding items
affecting comparability provides investors with a better comparison of expected
year-to-year operating results. For more information on items
affecting comparability refer to Management’s Discussion and Analysis of
Financial Condition and Results of Operations included in our 2007 Annual Report
on Form 10-K.
Safe Harbor
Statement
We are
subject to changing economic, competitive, regulatory and technological
conditions, risks and uncertainties because of the nature of our operations. In
connection with the “safe harbor” provisions of the Private Securities
Litigation Reform Act of 1995, we note the following factors that, among others,
could cause future results to differ materially from the forward-looking
statements, expectations and assumptions that we have discussed directly or
implied in this report. Many of
the forward-looking statements contained in this report may be identified by the
use of words such as “intend,” “believe,” “expect,” “anticipate,” “should,”
“planned,” “projected,” “estimated,” and “potential,” among
others.
Our
results could differ materially because of the following factors, which include,
but are not limited to:
·
|
Our
ability to implement and generate expected ongoing annual savings from the
initiatives to transform our supply chain and advance our value-enhancing
strategy;
|
·
|
Changes
in raw material and other costs and selling price
increases;
|
·
|
Our
ability to execute our supply chain transformation within the anticipated
timeframe in accordance with our cost estimates;
|
·
|
The
impact of future developments related to the product recall and temporary
plant closure in Canada during the fourth quarter of 2006, including our
ability to recover costs we incurred for the recall and plant closure from
responsible third parties;
|
·
|
The
impact of future developments related to the investigation by government
regulators of alleged pricing practices by members of the confectionery
industry, including risks of subsequent litigation or further government
action;
|
·
|
Pension
cost factors, such as actuarial assumptions, market performance and
employee retirement decisions;
|
·
|
Changes
in our stock price, and resulting impacts on our expenses for incentive
compensation, stock options and certain employee
benefits;
|
·
|
Market
demand for our new and existing products;
|
·
|
Changes
in our business environment, including actions of competitors and changes
in consumer preferences;
|
·
|
Changes
in governmental laws and regulations, including taxes;
|
·
|
Risks
and uncertainties related to our international operations;
and
|
·
|
Such
other matters as discussed in our Annual Report on Form 10-K for
2007.
|
Item
3. Quantitative and Qualitative Disclosures About Market
Risk
The
potential net loss in fair value of foreign exchange forward contracts of ten
percent resulting from a hypothetical near-term adverse change in market rates
was $.2 million as of March 30, 2008 and December 31,
2007. The market risk resulting from a hypothetical adverse market
price movement of ten percent associated with the estimated average fair value
of net commodity positions increased from $31.7 million as of December 31, 2007,
to $38.5 million as of March 30, 2008. Market risk represents
10% of the estimated average fair value of net commodity positions at four dates
prior to the end of each period.
Item
4. Controls and Procedures
Disclosure
controls and procedures are controls and other procedures that are designed to
ensure that information required to be disclosed in our reports filed or
submitted under the Securities Exchange Act of 1934 (the "Exchange Act") is
recorded, processed, summarized and reported within the time periods specified
in the Securities and Exchange Commission's rules and
forms. Disclosure controls and procedures include, without
limitation, controls and procedures designed to ensure that information required
to be disclosed in our reports filed under the Exchange Act is accumulated and
communicated to management, including the Company's Chief Executive Officer and
Chief Financial Officer, as appropriate, to allow timely decisions regarding
required disclosure.
As of the
end of the period covered by this quarterly report, we conducted an evaluation
of the effectiveness of the design and operation of our disclosure controls and
procedures, as required by Rule 13a-15 under the Exchange Act. This
evaluation was carried out under the supervision and with the participation of
the Company's management, including our Chief Executive Officer and Chief
Financial Officer. Based upon that evaluation, our Chief Executive
Officer and Chief Financial Officer concluded that the Company's disclosure
controls and procedures are effective. There has been no change
during the most recent fiscal quarter in our internal control over financial
reporting identified in connection with the evaluation
that has materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting.
PART
II - OTHER INFORMATION
Items
1, 1A, 3, 4 and 5 have been omitted as not applicable.
Item
2 - Unregistered Sales of Equity Securities and Use of Proceeds
Issuer
Purchases of Equity Securities
Period
|
(a)
Total Number
of
Shares
Purchased
|
(b)
Average
Price
Paid
per
Share
|
(c)
Total Number
of
Shares
Purchased
as Part
of
Publicly
Announced
Plans
or
Programs
|
(d)
Approximate
Dollar
Value of
Shares
that May
Yet
Be Purchased
Under
the Plans
or
Programs
|
|
|
|
|
(in
thousands of dollars)
|
January
1 through
January
27, 2008
|
—
|
$ —
|
—
|
$100,017
|
|
|
|
|
|
January
28 through
February
24, 2008
|
401,000
|
$ 35.91
|
—
|
$100,017
|
|
|
|
|
|
February
25 through
March
30, 2008
|
105,000
|
$ 37.43
|
—
|
$100,017
|
Total
|
506,000
|
|
—
|
|
Item
6 - Exhibits
The
following items are attached or incorporated herein by reference:
Exhibit
Number
|
|
Description
|
|
|
|
10.1
|
|
First
Amendment to The Hershey Company Executive Benefits Protection Plan (Group
3A) (Amended and Restated as of October 2, 2007), effective as of February
13, 2008, is attached hereto and filed as Exhibit
10.1.
|
10.2
|
|
First
Amendment to Amended and Restated Executive Employment Agreement between
the Company and David J. West, effective as of February 13, 2008, is
attached hereto and filed as Exhibit 10.2.
|
10.3
|
|
The
Hershey Company Directors’ Compensation Plan (Amended and Restated as of
February 13, 2008) is attached hereto and filed as Exhibit
10.3.
|
10.4
|
|
Executive
Confidentiality and Restrictive Covenant Agreement is attached hereto and
filed as Exhibit 10.4.
|
12.1
|
|
Statement
showing computation of ratio of earnings to fixed charges for the three
months ended March 30, 2008 and April 1, 2007.
|
31.1
|
|
Certification
of David J. West, Chief Executive Officer, pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
31.2
|
|
Certification
of Humberto P. Alfonso, Chief Financial Officer, pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
|
32.1*
|
|
Certification
of David J. West, Chief Executive Officer, and Humberto P. Alfonso, Chief
Financial Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
|
|
|
*Pursuant
to Securities and Exchange Commission Release No. 33-8212, this
certification will be treated as “accompanying” this Quarterly Report on
Form 10-Q and not “filed” as part of such report for purposes of Section
18 of the Exchange Act or otherwise subject to the liability of Section 18
of the Exchange Act, and this certification will not be deemed to be
incorporated by reference into any filing under the Securities Act of
1933, as amended, or the Exchange Act, except to the extent that the
Company specifically incorporates it by
reference.
|
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
|
|
THE
HERSHEY COMPANY
|
|
(Registrant)
|
|
|
|
|
Date: May
7, 2008
|
/s/Humberto P.
Alfonso
Humberto
P. Alfonso
Chief
Financial Officer
|
|
|
Date: May
7, 2008
|
/s/David W.
Tacka
David
W. Tacka
Chief
Accounting Officer
|
EXHIBIT
INDEX
|
|
|
Exhibit
10.1
|
First
Amendment to The Hershey Company Executive Benefits Protection Plan (Group
3A) (Amended and Restated as of October 2, 2007)
|
|
|
Exhibit
10.2
|
First
Amendment to Amended and Restated Executive Employment
Agreement
|
|
|
Exhibit
10.3
|
The
Hershey Company Directors’ Compensation Plan (Amended and Restated as of
February 13, 2008)
|
|
|
Exhibit
10.4
|
Executive
Confidentiality and Restrictive Covenant Agreement
|
|
|
Exhibit
12.1
|
Computation
of Ratio of Earnings to Fixed Charges
|
|
|
Exhibit
31.1
|
Certification
of David J. West, Chief Executive Officer, pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
|
|
|
Exhibit
31.2
|
Certification
of Humberto P. Alfonso, Chief Financial Officer, pursuant to Section 302
of the Sarbanes-Oxley Act of 2002
|
|
|
Exhibit
32.1
|
Certification
of David J. West, Chief Executive Officer, and Humberto P. Alfonso, Chief
Financial Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
|
|
|