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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
For the fiscal year ended December 31, 1996
OR
|-| Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from ..... to .....
Registrant, State of Incorporation,
Address and Telephone Number
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Hershey Foods Corporation
Commission I.R.S. Employer
File No. (a Delaware Corporation) Identification No.
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1-183 100 Crystal A Drive 23-0691590
Hershey, Pennsylvania 17033
(717) 534-6799
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
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Common Stock, one dollar par value 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. |_|
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 -- $4,402,864,458 as of March 3, 1997.
Class B Common Stock, one dollar par value -- $7,461,816 as of March 3,
1997. 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 3, 1997.
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 -- 122,314,799 shares, as of March 3,
1997.
Class B Common Stock, one dollar par value -- 30,470,908 shares, as of March
3, 1997.
DOCUMENTS INCORPORATED BY REFERENCE
The Corporation's Consolidated Financial Statements and Management's
Discussion and Analysis for the year ended December 31, 1996 are included in
Appendix B to the Corporation's Proxy Statement for the Corporation's 1997
Annual Meeting of Stockholders and are incorporated by reference into Part II
and are filed as Exhibit 13 hereto. Portions of the Proxy Statement are
incorporated by reference herein into Part III.
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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 North America, Hershey
International and Hershey Pasta and Grocery Group divisions, produces and
distributes a broad line of chocolate and non-chocolate confectionery, pasta and
grocery 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 December 1996, the Corporation acquired from an affiliate of Huhtamaki Oy
("Huhtamaki"), the international foods company based in Finland, Huhtamaki's
Leaf North America ("Leaf") confectionery operations. In addition, the parties
entered into a trademark and technology license agreement under which the
Corporation will manufacture and/or market and distribute in North, Central and
South America Huhtamaki's confectionery brands including GOOD & PLENTY, HEATH,
JOLLY RANCHER, MILK DUDS, PAYDAY and WHOPPERS. Leaf's principal manufacturing
facilities are located in Denver, Colorado; Memphis, Tennessee; and Robinson,
Illinois.
Also in December 1996, the Corporation completed the sale to Huhtamaki of
the outstanding shares of Gubor Holding GmbH ("Gubor") and Sperlari, S.r.l.
("Sperlari"). Gubor manufactures and markets high-quality assorted pralines and
seasonal chocolate products in Germany and Sperlari manufactures and markets
various confectionery and grocery products in Italy.
The Corporation's principal product groups include: chocolate and
non-chocolate confectionery products sold in the form of bar goods, bagged items
and boxed items; grocery products in the form of baking ingredients, chocolate
drink mixes, peanut butter, dessert toppings and beverages; and pasta products
sold in a variety of shapes, sizes and packages. 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 non-chocolate confectionery products are greater than
those on pasta and other food products.
In North America, the Corporation manufactures chocolate and non-chocolate
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
non-chocolate confectionery products in the United States are: HERSHEY'S COOKIES
'N' CREME chocolate bars, 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, HERSHEY'S NUGGETS chocolates, AMAZIN' FRUIT gummy bears fruit candy,
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 NUTRAGEOUS candy bars,
REESE'S peanut butter cups, REESE'S PIECES candies, ROLO caramels in milk
chocolate, SKOR toffee bars, SYMPHONY milk chocolate bars, SWEET ESCAPES candy
bars, TASTETATIONS candy, TWIZZLERS candy, WHATCHAMACALLIT candy bars, YORK
peppermint pattie candy and 5TH AVENUE candy bars. Principal products in Canada
include CHIPITS chocolate chips, GLOSETTE chocolate-covered raisins, peanuts and
almonds, OH HENRY! candy bars, POT OF GOLD boxed chocolates, REESE PEANUT BUTTER
CUPS candy, and TWIZZLERS candy. The Corporation also manufactures, imports,
markets, sells and distributes chocolate products in Mexico under the HERSHEY'S
brand name.
1
The Corporation manufactures and markets a line of grocery products in the
baking, beverage, peanut butter and toppings categories. Principal products in
the United States include HERSHEY'S baking chips, HERSHEY'S drink boxes,
HERSHEY'S chocolate milk mix, HERSHEY'S cocoa, HERSHEY'S CHOCOLATE SHOPPE
toppings, HERSHEY'S HOT COCOA COLLECTION hot cocoa mix, HERSHEY'S syrup, REESE'S
peanut butter and REESE'S peanut butter baking chips. HERSHEY'S chocolate milk
is produced and sold under license by certain independent dairies throughout the
United States, using a chocolate milk mix manufactured by the Corporation. Ice
cream, baking and various other products are produced and sold under the
HERSHEY'S and REESE'S brand names by third parties who have been granted
licenses by the Corporation to use these trademarks.
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, IDEAL BY SAN GIORGIO, LIGHT 'N
FLUFFY, MRS. WEISS, P&R, RONZONI, SAN GIORGIO and SKINNER, as well as certain
private labels.
The Corporation's 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, Canada and Mexico. The
Corporation believes its products are sold in over 2 million retail outlets in
North America. In 1996, sales to Wal-Mart Stores, Inc. and Subsidiaries amounted
to approximately 12% of total net sales.
In Japan, China and Russia/CIS, the Corporation imports and/or markets
selected confectionery and grocery products. The Corporation also exports
chocolate and non-chocolate confectionery products to over 60 countries
worldwide.
The Corporation's marketing strategy 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 the year to
stimulate sales of certain products. Chocolate and non-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 efficiencies in 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, 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
products to accommodate changes in manufacturing costs, the competitive
environment and profit objectives, while at the same time maintaining consumer
value. The last standard candy bar price increase was implemented by the
Corporation in December 1995, resulting in a wholesale price increase of
approximately 11% on its standard and king-size candy bars sold in the United
States.
The most significant raw material used in the production of the
Corporation's chocolate 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
requirements.
2
The table below sets forth annual average cocoa prices as well as the
highest and lowest monthly averages 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
discussed below, 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)
1992 1993 1994 1995 1996
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Annual Average......... 47.6 47.3 59.1 61.2 62.1
High................... 56.2 56.7 66.1 64.1 64.4
Low.................... 41.3 41.8 51.3 58.3 57.4
Source: International Cocoa Organization Quarterly Bulletin of Cocoa Statistics
The Federal Agricultural and Improvement Reform Act of 1996, which is a
seven-year farm bill, was signed into law in April 1996. This legislation
impacts the prices of sugar, peanuts, and milk because it sets price support
levels for these commodities.
The price of sugar, the Corporation's second most important commodity for
its domestic chocolate and confectionery products, is subject to price supports
under the above referenced 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
to $.35 per pound for the past ten years.
Peanut prices were firm throughout the first three quarters of 1996,
averaging about 10 - 20% higher than 1995. During the fourth quarter of 1996,
prices returned to the 1995 levels as a result of the harvest of an above
average new crop.
Dairy prices reached historically high levels in 1996 as the high price of
dairy feeds negatively impacted milk production. While dairy product prices fell
to 1995 levels during the fourth quarter as a result of inventory buildup and
consumer price resistance, fluid milk prices did not fall to lower levels until
the first quarter of 1997 as such pricing formulas lag the prices of other dairy
products.
Almond prices remained at unprecedented high levels for the first three
quarters of 1996. A slight decline in prices resulted during the fourth quarter
as the new crop was harvested, but prices remained at historically high levels.
Pasta is made from semolina milled from durum wheat, a class of hard wheat
grown in the United States and Canada. The Corporation purchases semolina from
commercial mills and is also engaged in custom milling agreements to obtain
sufficient quantities of semolina. In the first half of 1996, the market price
for durum semolina remained near historic highs. Durum wheat production during
1996 increased in almost every area of the world, resulting in some price
declines in the last quarter of the year. However, prices remained well above
long-term historical price levels.
The Corporation attempts to minimize the effect of price fluctuations
related to the purchase of its major raw materials primarily through the forward
purchasing of such commodities to cover future manufacturing requirements
generally for periods ranging from 3 to 24 months. With regard to cocoa, sugar
and corn sweeteners, price risks are also managed by entering into futures and
options contracts. At the present time, similar futures and options contracts
are not available for use in pricing the Corporation's other major raw
materials. Futures contracts are used in combination with forward purchasing of
cocoa, sugar and corn sweetener requirements principally to take advantage of
market fluctuations which provide more favorable pricing opportunities and to
increase diversity or flexibility in sourcing these raw materials. The
Corporation's commodity procurement practices are intended to reduce the risk of
future price increases, but also may potentially limit the Corporation's ability
to benefit from possible price decreases.
The primary effect on liquidity from using futures contracts is associated
with margin requirements related to cocoa and sugar futures. Cash outflows and
inflows result from original margins which are "good faith deposits" established
by the New York Coffee, Sugar and Cocoa Exchange to ensure that market
participants will meet their contractual financial obligations. Additionally,
variation margin payments and receipts are required when the value of open
positions is adjusted to reflect daily price movements. The magnitude of such
cash inflows and outflows is dependent upon price coverage levels and the
volatility of the market. Historically, cash flows related to margin
requirements have not been material to the Corporation's total working capital
requirements.
3
The Corporation manages the purchase of forward and futures contracts by
developing and monitoring procurement strategies for each of its major
commodities. These procurement strategies, including the use of futures
contracts to hedge the pricing of cocoa, sugar and corn sweeteners, are directly
linked to the overall planning and management of the Corporation's business,
since the cost of raw materials accounts for a significant portion of the cost
of finished goods. Procurement strategies with regard to cocoa, sugar and other
major raw material requirements are developed by the analysis of fundamentals,
including weather and crop analysis, and by discussions with market analysts,
brokers and dealers. Procurement strategies are determined, implemented and
monitored on a regular basis by senior management. Procurement activities for
all major commodities are also reported to the Board of Directors on a regular
basis.
The Corporation has license agreements with several companies to manufacture
and/or sell products worldwide. Among the more significant are agreements with
affiliated companies of Cadbury Schweppes p.l.c. 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 exceeded in 1996. The Corporation also has an agreement with
Societe des Produits Nestle SA, which licenses the Corporation to manufacture
and distribute KIT KAT and ROLO confectionery products in the United States. 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 1996, the minimum volume requirements were exceeded. The
Corporation has also entered into an agreement with Huhtamaki pursuant to which
it licenses the use of certain trademarks, including the GOOD & PLENTY, HEATH,
JOLLY RANCHER, MILK DUDS, PAYDAY and WHOPPERS brands in the North, Central and
South American regions. The Corporation's rights under this agreement are
extendable on a long-term basis at the Corporation's option.
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 owns various registered and unregistered trademarks and
service marks, and has rights under licenses to use various trademarks 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 a variety of research activities. These
principally involve development of new products, improvement in the quality of
existing products, improvement and modernization of production processes, and
the development and implementation of new technologies to enhance the quality
and value of 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.
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.
4
Employees
As of December 31, 1996, the Corporation had approximately 14,000 full-time
and 1,300 part-time employees, of whom approximately 6,000 were covered by
collective bargaining agreements. The Corporation considers its employee
relations to be good.
Financial Information by Geographic Area
Information concerning the Corporation's geographic segments is contained in
Footnote 16 of the Corporation's Consolidated Financial Statements and
Management's Discussion and Analysis included in Appendix B to the Proxy
Statement for its 1997 Annual Meeting of Stockholders (the "Proxy Statement"),
which information is incorporated herein by reference and filed as Exhibit 13
hereto.
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 and grocery products (3
principal plants)
Lancaster, Pennsylvania - confectionery products
Oakdale, California - confectionery and grocery products
Robinson, Illinois - confectionery products
Stuarts Draft, Virginia - confectionery products
Winchester, Virginia - pasta products
CANADA
Smiths Falls, Ontario - confectionery products
In addition to the locations indicated above, the Corporation owns or
leases several other properties used for manufacturing chocolate and
non-chocolate confectionery, grocery and pasta products and for 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 plants are located in
Hershey, Pennsylvania. Many additions and improvements have been made to these
facilities over the years and the plants' 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.
5
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 B-7 and B-8 of the Corporation's
Consolidated Financial Statements and Management's Discussion and Analysis
included in Appendix B to the Proxy Statement which is deemed to be part of the
Annual Report to Stockholders and which information is incorporated herein by
reference and filed as Exhibit 13 hereto.
Item 6. SELECTED FINANCIAL DATA
The following information, for the five years ended December 31, 1996,
found in the section "Eleven-Year Consolidated Financial Summary" on pages B-30
through B-32 of the Corporation's Consolidated Financial Statements and
Management's Discussion and Analysis included in Appendix B to the Proxy
Statement, is incorporated herein by reference and filed as Exhibit 13 hereto:
Net Sales; Income from Continuing Operations Before Accounting Changes; Income
Per Share from Continuing Operations Before Accounting Changes (excluding Notes
h, i, j and k); 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 B-1
through B-8 of the Corporation's Consolidated Financial Statements and
Management's Discussion and Analysis included in Appendix B to the Proxy
Statement, is incorporated herein by reference and filed as Exhibit 13 hereto.
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
Consolidated Financial Statements and Management's Discussion and Analysis
included in Appendix B to the Proxy Statement, and such financial statements,
along with the report of the independent public accountants thereon, are
incorporated herein by reference and filed as Exhibit 13 hereto.
1. Consolidated Statements of Income for the years ended December
31, 1996, 1995 and 1994. (Page B-9)
2. Consolidated Balance Sheets as of December 31, 1996 and 1995.
(Page B-10)
3. Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994. (Page B-11)
4. Consolidated Statements of Stockholders' Equity for the years
ended December 31, 1996, 1995 and 1994. (Page B-12)
5. Notes to Consolidated Financial Statements (Pages B-13 through
B-27), including "Quarterly Data (Unaudited)." (Page B-27)
6. Report of Independent Public Accountants. (Page B-29)
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
6
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 Proxy Statement. This information is incorporated
herein by reference.
Executive Officers of the Corporation as of March 3, 1997
Name Age Positions Held During the Last Five Years
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K. L. Wolfe..................... 58 Chairman of the Board and Chief Executive Officer (1993); President and Chief
Operating Officer (1985)
J. P. Viviano................... 58 President and Chief Operating Officer (1993); President, Hershey Chocolate
U.S.A., now Hershey Chocolate North America, a division of Hershey Foods
Corporation (1985)
W. F. Christ ................... 56 Senior Vice President and Chief Financial Officer (1994); President, Hershey
International, a division of Hershey Foods Corporation (1988)
R. Brace ...................... 53 Vice President, Operations (1997); Vice President, Manufacturing, Hershey
Chocolate North America (1995); Vice President, Manufacturing, Hershey
Chocolate U.S.A. (1987)
J. F. Carr .................... 52 President, Hershey Pasta and Grocery Group, a division of Hershey Foods
Corporation (1997); President, Hershey International (1994); Vice President,
Marketing, Hershey Chocolate U.S.A. (1984)
M. F. Pasquale.................. 49 President, Hershey Chocolate North America (1995); President, Hershey
Chocolate U.S.A. (1994); Senior Vice President and Chief Financial Officer
(1988)
R. M. Reese .................... 47 Vice President, General Counsel and Secretary (1995); Vice President and
General Counsel (1992)
C. M. Skinner................... 63 Vice Chair, Hershey Pasta and Grocery Group (1997); President, Hershey Pasta
and Grocery Group (1996); President, Hershey Pasta Group (1984)
D. W. Tacka..................... 43 Corporate Controller and Chief Accounting Officer (1995); Vice President,
Finance and Administration, Hershey Pasta Group (1989)
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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.
Reporting of inadvertent late filings of a Securities and Exchange
Commission Form 4 under Section 16 of the Securities Exchange Act of 1934, as
amended, is set forth in the section of the Proxy Statement "Section 16(a)
Beneficial Ownership Reporting Compliance."
7
Item 11. EXECUTIVE COMPENSATION
Information concerning compensation of the five most highly-compensated
executive officers, including the Chairman of the Board and Chief Executive
Officer, of the Corporation individually, and compensation of directors, is set
forth in the sections "1996 Executive Compensation" and "Compensation of
Directors" in the Proxy Statement. 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 Proxy Statement. This information is
incorporated herein by reference.
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 Proxy
Statement. 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
Consolidated Financial Statements and Management's Discussion and Analysis
included in Appendix B to the Proxy Statement and filed as Exhibit 13 hereto.
Item 14(a)(2): Financial Statement Schedule
The following consolidated financial statement schedule of the Corporation
and its subsidiaries for the years ended December 31, 1996, 1995 and 1994 is
filed herewith on the indicated page in response to Item 14(d):
Schedule II -- Valuation and Qualifying Accounts (Page 14)
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 3 to the Corporation's Quarterly
Report on Form 10-Q for the quarter ended April 3, 1988. The By-laws, as
amended on October 3, 1995, are incorporated by reference from Exhibit 3
to the Corporation's Report on Form 10-Q for the quarter ended October
1, 1995.
8
(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. 8.85% to 9.92% Medium-Term Notes due 1997-1998
b. 6.7% Notes due 2005
c. 6.95% Notes due 2007
d. 8.8% Debentures due 2021
e. Other Obligations
The Corporation will furnish copies of the above debt instruments to
the Commission upon request.
(10) Material contracts
a. Kit Kat and Rolo License Agreement (the "License Agreement")
between Hershey Foods Corporation and Rowntree Mackintosh
Confectionery Limited is incorporated by reference from Exhibit
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 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 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 CBI Holdings, Inc.) dated August 25, 1988,
is incorporated by reference from Exhibit 2(a) to the
Corporation's Current Report on Form 8-K dated September 8,
1988. This agreement was assigned by the Corporation to its
wholly owned subsidiary, Homestead, Inc., effective January 1,
1997.
c. Cadbury Trademark & Technology License Agreement among Hershey
Foods Corporation and Cadbury Schweppes Inc. (now CBI Holdings,
Inc.) and Cadbury Limited dated August 25, 1988, is incorporated
by reference from Exhibit 2(a) to the Corporation's Current
Report on Form 8-K dated September 8, 1988.
d. 364-Day Credit Agreement among Hershey Foods Corporation, the
banks, financial institutions and other institutional lenders
listed on the signature pages thereof, and Citibank, N.A. as
administrative agent bank and Citicorp Securities, Inc. and BA
Securities, Inc. as co-syndication agents, is incorporated by
reference from Exhibit 10.1 to the Corporation's Current Report
on Form 8-K dated January 29, 1996. The 364-Day Credit Agreement
was amended and renewed in late 1996 and the Amendment Agreement
is attached hereto as Exhibit 10.1.
e. Five-Year Credit Agreement among Hershey Foods Corporation, the
banks, financial institutions and other institutional lenders
listed on the signature pages thereof, and Citibank, N.A. as
administrative agent bank and Citicorp Securities, Inc. and BA
Securities, Inc. as co-syndication agents, is incorporated by
reference from Exhibit 10.2 to the Corporation's Current Report
on Form 8-K dated January 29, 1996. The Five-Year Credit
Agreement was amended and renewed in late 1996 and the Amendment
Agreement is attached hereto as Exhibit 10.2.
f. Trademark and Technology License Agreement between Huhtamaki and
Hershey Foods Corporation dated December 30, 1996, is
incorporated by reference from Exhibit 10 to the Corporation's
Current Report on Form 8-K dated February 26, 1997. This
agreement was assigned by the Corporation to its wholly owned
subsidiary, Homestead, Inc., effective January 1, 1997.
9
Executive Compensation Plans
g. The 1987 Key Employee Incentive Plan, as amended, is
incorporated by reference from Exhibit 19(i) to the
Corporation's Annual Report on Form 10-K for the fiscal year
ended December 31, 1994.
h. Hershey Foods Corporation's Restated Supplemental Executive
Retirement Plan is incorporated by reference from Exhibit 19(ii)
to the Corporation's Annual Report on Form 10-K for the fiscal
year ended December 31, 1994.
i. Hershey Foods Corporation's Non-Management Director Retirement
Plan is incorporated by reference from Exhibit 19 to the
Corporation's Quarterly Report on Form 10-Q for the quarter
ended March 29, 1992.
j. Hershey Foods Corporation's Deferral Plan for Non-Management
Directors is incorporated by reference from Exhibit 10 to the
Corporation's Annual Report on Form 10-K for the fiscal year
ended December 31, 1992.
k. A form of the Benefit Protection Agreements entered into between
the Corporation and certain of its executive officers is
incorporated by reference from Exhibit 10 to the Corporation's
Annual Report on Form 10-K for the fiscal year ended December
31, 1994.
l. Hershey Foods Corporation's Deferred Compensation Plan, as
revised, is attached hereto as Exhibit 10.3.
m. Hershey Foods Directors' Compensation Plan which is attached
hereto as Exhibit 10.4.
(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, 1996, 1995, 1994, 1993 and 1992 is filed as Exhibit 12
hereto.
(13) Annual report to security holders
The Corporation's Consolidated Financial Statements and Management's
Discussion and Analysis is included in Appendix B to the Proxy
Statement and is filed as Exhibit 13 hereto.
(21) Subsidiaries of the Registrant
A list setting forth subsidiaries of the Corporation is filed as
Exhibit 21 hereto.
(23) Consent of Independent Public Accountants
10
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 17, 1997 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 and Director March 17, 1997
(K. L. Wolfe)
W. F. CHRIST Chief Financial Officer March 17, 1997
(W. F. Christ)
D. W. TACKA Chief Accounting Officer March 17, 1997
(D.W. Tacka)
J. P. VIVIANO Director March 17, 1997
(J. P. Viviano)
W. H. ALEXANDER Director March 17, 1997
(W. H. Alexander)
R. H. CAMPBELL Director March 17, 1997
(R. H. Campbell)
C. M. EVARTS Director March 17, 1997
(C. M. Evarts)
T. C. GRAHAM Director March 17, 1997
(T. C. Graham)
B. GUITON HILL Director March 17, 1997
(B. Guiton Hill)
11
Signature Title Date
--------- ----- ----
J. C. JAMISON Director March 17, 1997
(J. C. Jamison)
M. J. MCDONALD Director March 17, 1997
(M. J. McDonald)
J. M. PIETRUSKI Director March 17, 1997
(J. M. Pietruski)
V. A. SARNI Director March 17, 1997
(V. A. Sarni)
12
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE
To Hershey Foods Corporation:
We have audited, in accordance with generally accepted auditing standards, the
consolidated financial statements included in Hershey Foods Corporation's Proxy
Statement for its 1997 Annual Meeting of Stockholders incorporated by reference
in this Form 10-K, and have issued our report thereon dated January 27, 1997.
Our audit was made for the purpose of forming an opinion on those financial
statements taken as a whole. The schedule listed on page 8 in Item 14(a)(2)is
the responsibility of the Corporation's management and is presented for purposes
of complying with the Securities and Exchange Commission's rules and is not part
of the basic financial statements. This schedule has been subjected to the
auditing procedures applied in the audit of the basic financial statements and,
in our opinion, fairly states 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 LLP
New York, New York
January 27, 1997
13
Schedule II
HERSHEY FOODS CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended December 31, 1996, 1995 and 1994
(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, 1996:
Reserves deducted in the
balance sheet from the assets
to which they apply:
Accounts Receivable -Trade ................ $ 14,801 $ 1,238 $ 298 $ (2,278) $14,059
========= ========= ========= ======== =======
Year Ended December 31, 1995:
Reserves deducted in the
balance sheet from the assets
to which they apply:
Accounts Receivable -Trade................. $ 13,972 $ 1,318 $ (432) $(57) $14,801
========= ========= ========= ==== =======
Year Ended December 31, 1994:
Reserves deducted in the
balance sheet from the assets
to which they apply:
Accounts Receivable -Trade................. $ 12,479 $ 3,144 $ (1,016) $(635) $13,972
========= ========= ========= ===== =======
- -----------------------------------
(a) Includes recoveries of amounts previously written off.
14
HERSHEY FOODS CORPORATION ANNUAL REPORT ON FORM 10-K
Index to Exhibits
Exhibit No.
- -----------
10.1 - Amended and Restated 364-Day Credit Agreement
10.2 - Amended and Restated Five-Year Credit Agreement
10.3 - Hershey Foods Corporation Deferred Compensation Plan
10.4 - Hershey Foods Corporation Directors' Compensation Plan
12 - Computation of ratio of earnings to fixed charges statement
13 - Consolidated Financial Statements and Management's Discussion and
Analysis for the year ended December 31, 1996
21 - Subsidiaries of Registrant
23 - Consent of Independent Public Accountants