01—Abstract
Summary
Summary of the 10-K filed March 13, 1996. Cited figures are marked; the original filing is the authoritative source.
Hershey Foods Corporation's 10-K for fiscal 1995 reports net sales of $3.69 billiona, up from $3.61 billion in 1994 (net sales rose $84.4 million or 2% in 1995).
Net income was $281.9 millionb, or $3.40 per share, compared with $184.2 million, or $2.12 per share, in 1994, which included a $106.1 million pre-tax restructuring charge. Excluding after-tax restructuring effects, income rose $15.5 million or 6%, and operating return on average stockholders' equity was 22.2%. The company describes itself as a major factor in chocolate and non-chocolate confectionery, grocery and pasta products in North America, with more than 50 brands and products sold in over 2 million retail outlets.
Wal-Mart Stores accounted for approximately 11% of 1995 net sales. Balance sheet and capital structure changed significantly during the year. Total assets were $2.83 billionc, while total stockholders' equity declined 25% to $1.08 billion, primarily due to the repurchase of Common Stock, including 9,049,773 shares bought from the Milton Hershey School Trust for $500.0 million in August 1995.
Total liabilities rose $297.8 milliond, or 21%, as short-term debt increased to $413.3 million and the company issued $200 million of 6.7% Notes due 2005. The capitalization ratio rose to 42% from 25%, and the current ratio was 1.1:1. Management describes the financial position as strong, and the company expects capital expenditures of $125 million to $175 million per year.
Operationally, the company completed the acquisition of Henry Heide, Incorporated for approximately $12.5 million and the sale of OZF Jamin in June 1995. It also agreed to sell Hershey Canada's Planters and Life Savers/Beech-Nut businesses, with both transactions completed in January 1996.
Cocoa futures averaged 61.2 cents per pound in 1995, and the company raised the wholesale price of its standard and king-size candy bars by approximately 11% in December 1995. The filing states that the Milton Hershey School Trust held roughly 76% of total votes, and it announced an additional $200 million share repurchase program in February 1996.
02—Key points
Key Highlights
- Net sales of $3,690.7 million in 1995, up from $3,606.3 million in 1994, with net sales rising $84.4 million or 2%.
- Net income of $281.9 million ($3.40 per share) in 1995, compared with $184.2 million ($2.12 per share) in 1994, which included an after-tax restructuring charge of $80.2 million ($.92 per share).
- Operating return on average stockholders' equity of 22.2% in 1995, and operating return on average invested capital of 17.1%.
- Stockholders' equity fell 25% to $1,082.96 million after share repurchases, including 9,049,773 shares bought from the Milton Hershey School Trust for $500.0 million in August 1995.
- Total debt increased, with short-term debt at $413.3 million and $200 million of 6.7% Notes due 2005 issued in October 1995; the capitalization ratio rose to 42% from 25%.
- Wholesale price increase of approximately 11% on standard and king-size candy bars in December 1995, which the company says represented approximately 25% of 1995 sales.
- Sale of Hershey Canada's Planters and Life Savers/Beech-Nut businesses, both completed in January 1996, and the acquisition of Henry Heide, Incorporated in December 1995.
03—Questions
Frequently Asked Questions
How did Hershey's sales and profits perform in 1995?
Net sales rose $84.4 million, or 2%, to $3,690.7 million, and net income increased to $281.9 million, or $3.40 per share, from $184.2 million, or $2.12 per share, in 1994. The 1994 results included a $106.1 million pre-tax restructuring charge. Excluding after-tax restructuring effects, income increased $15.5 million, or 6%.
Why did stockholders' equity decline and how did the company finance its share repurchases?
Stockholders' equity declined 25% to $1,082.96 million, primarily due to the repurchase of Common Stock, including the $500.0 million purchase of 9,049,773 shares from the Milton Hershey School Trust in August 1995. The company funded the purchase largely with short-term borrowings, then issued $200 million of 6.7% Notes due 2005 in October 1995 to reduce short-term borrowings. Total liabilities rose $297.8 million, or 21%.
What risks does the filing identify in raw material costs?
Cocoa beans, the most significant raw material, are subject to wide price fluctuations, and the company says 1996 cocoa futures prices could rise if the West African crop development falters. Semolina for pasta remained at historically high levels in 1995, and the company has not been able to fully recover higher semolina costs through price increases. The company attempts to limit these risks through forward purchasing generally covering 3 to 24 months and through futures and options for cocoa, sugar and corn sweeteners.
Who controls the company and what are the capital structure terms?
The Milton Hershey School Trust held 12,300,979 shares of Common Stock and 15,153,003 shares of Class B Common Stock as of December 31, 1995, and was entitled to cast approximately 76% of total votes. Common Stock has one vote per share and Class B Stock has ten votes per share. Common Stock carries cash dividends 10% higher than Class B Stock, and Class B Stock is convertible into Common Stock on a share-for-share basis.
What is the company's outlook for capital spending and shareholder returns?
The company anticipates capital expenditures of $125 million to $175 million per year over the next several years for modernization and capacity expansion. In February 1996, the Board approved an additional share repurchase program of up to $200 million of Common Stock. The quarterly dividend declared in February 1996 was $.36 per share of Common Stock, the 265th consecutive quarterly Common Stock dividend.
04—Continue