01—Abstract
Summary
Summary of the 10-K filed March 16, 1998. Cited figures are marked; the original filing is the authoritative source.
Hershey Foods Corporation reported record net sales of $4.30 billiona in 1997, up from $3.99 billion in 1996, and record income.
Net income rose to $336.3 millionb, or $2.23 per diluted share, compared with $273.2 million ($1.75 per diluted share) in 1996, which included a $35.4 million after-tax loss on the sale of the Gubor and Sperlari European businesses. Growth was driven by the December 1996 acquisition of Huhtamaki's Leaf North America confectionery operations for $437.2 million, the introduction of new confectionery products, and core brand growth. Gross costs rose modestly, with cost of sales at 57.9% of net sales in 1997 versus 57.7% in 1996.
The balance sheet became more leveraged during the year. Long-term debt rose to $1.03 billionc from $655.3 million, largely to fund the Leaf acquisition and an August 1997 purchase of 9,900,990 common shares from the Milton Hershey School Trust for $500.0 million. Total stockholders' equity fell to $852.8 million from $1.16 billion, and the company's capitalization ratio rose to 60% from 46%.
Cash from operations was $476.9 milliond in 1997. Capital additions were $172.9 million, and management anticipates $175 million to $200 million per year in capital expenditures. The company also disclosed Year 2000 remediation work tied to a $75 million to $85 million enterprise-wide information system project.
The Milton Hershey School Trust held roughly 76% of the total votes of both common classes, a control position that the filing notes must be preserved for any share issuance. Wal-Mart accounted for approximately 12% of 1997 net sales. The company reported no material pending legal proceedings, and it stated that environmental compliance expenditures had not been material.
02—Key points
Key Highlights
- Net sales reached $4,302,236 thousand in 1997, up from $3,989,308 thousand in 1996.
- Net income was $336,251 thousand, or $2.23 per diluted share, compared with $273,186 thousand, or $1.75 per diluted share, in 1996.
- The Leaf North America acquisition from Huhtamaki was completed in December 1996 for $437.2 million, plus $17.0 million of assumed debt.
- Long-term debt rose to $1,029,136 thousand from $655,289 thousand, and the capitalization ratio increased to 60% from 46%.
- Stockholders' equity declined to $852,806 thousand from $1,161,021 thousand, reflecting Treasury Stock purchases of $500.0 million in August 1997.
- The Milton Hershey School Trust held approximately 76% of total voting power across both common classes.
- Wal-Mart Stores, Inc. accounted for approximately 12% of 1997 total net sales.
03—Questions
Frequently Asked Questions
How did Hershey perform financially in 1997?
The filing reports record net sales of $4.30 billion and net income of $336.3 million, or $2.23 per diluted share. Net income rose $63.1 million, or 23%, from 1996, which had included an after-tax loss of $35.4 million on the sale of the Gubor and Sperlari businesses. Excluding that loss and the 1995 restructuring effects, 1997 income increased $27.7 million, or 9%.
Why did debt increase significantly in 1997?
Long-term debt increased by $373.8 million, mainly to repay commercial paper used for the Leaf acquisition and to fund the purchase of 9,900,990 common shares from the Milton Hershey School Trust for $500.0 million. The company issued $150 million of 6.95% Notes due 2007 in March 1997 and $150 million of 6.95% Notes due 2012 plus $250 million of 7.2% Debentures due 2027 in August 1997.
What are the company's main raw material cost exposures?
The most significant raw material is cocoa beans, with West Africa accounting for approximately 60% of the world's crop. The company also cites sugar, milk, peanuts, flour, and almonds as major inputs. It uses forward purchasing for periods of 3 to 24 months and futures contracts for cocoa, sugar, corn sweeteners, and natural gas. The 1997 cocoa futures annual average was 70.0 cents per pound, compared with 62.1 cents in 1996.
Who controls the company's voting power?
The Milton Hershey School Trust held 14,635,252 shares of Common Stock and, as trustee for the benefit of Milton Hershey School, 30,306,006 shares of Class B Common Stock as of December 31, 1997. This gave it approximately 76% of the total votes of both classes. The Class B Stock carries ten votes per share, while Common Stock carries one vote per share.
04—Continue