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Hershey Annual Report, Year Ended Dec 31, 1999

Filing Date
Filed March 13, 2000
Period End
December 31, 1999
Security
HSY
In the record · 2016–202610-K1110-Q358-K142

HSY filed 11 annual reports (10-K), 35 quarterly reports (10-Q) and 142 current reports (8-K) between 2016 and 2026.

  1. Restructuring8-K · Feb ’17Feb ’17
  2. Material agreement8-K · Nov ’18Nov ’18
  3. Leadership change8-K · Feb ’21Feb ’21
  4. Material agreement8-K · Oct ’25Oct ’25

01—Abstract

Summary

Summary of the 10-K filed March 13, 2000. Cited figures are marked; the original filing is the authoritative source.

Hershey Foods Corporation's 10-K for fiscal 1999 shows net sales declining to $3.97 billiona from $4.44 billion in 1998, reflecting the January 1999 divestiture of the U.S. pasta business (which contributed $343.8 million to the sales reduction) and reduced 1999 shipments of core confectionery and grocery products.

The decline was attributed primarily to order fulfillment difficulties following the July 1999 start-up of a new integrated information system. Net income rose to $460.3 millionb, or $3.26 per diluted share, but this included a $165.0 million after-tax gain on the pasta sale; excluding the gain, net income decreased $45.6 million, or 13%. The company describes its financial position as strong, with a capitalization ratio of 50% and a current ratio of 1.8:1 at year-end.

The filing describes operational problems in the third and fourth quarters of 1999 that caused lost sales, longer turnaround times, higher freight and warehousing costs, and elevated receivable deductions and past-due amounts. Management says order cycle time and fill rates improved in early 2000, though customer service has not fully returned to historical levels. A new 1.2 million square-foot distribution center is expected to begin operating in spring 2000.

The company also disclosed an IRS proposed deficiency related to its Corporate Owned Life Insurance program, with a total impact of approximately $60.4 millionc, which it is contesting. Capital returns were significant in 1999: the company repurchased 5,478,379 common shares for $318.0 million, including $100.0 million from the Milton Hershey School Trust, and declared a quarterly dividend of $.26 per Common share. Wal-Mart accounted for approximately 15% of 1999 net sales, and the Hershey Trust controlled approximately 77% of total votes.

02—Key points

Key Highlights

  1. Net sales fell to $3,970.9 million in 1999 from $4,435.6 million in 1998, with the pasta divestiture reducing sales by $343.8 million.
  2. Net income of $460.3 million ($3.26 diluted EPS) included a $165.0 million after-tax gain on the sale of the pasta business; excluding the gain, net income decreased $45.6 million or 13%.
  3. Third- and fourth-quarter 1999 order fulfillment problems following a new integrated information system start-up caused lost sales, higher freight and warehousing costs, and elevated receivable deductions.
  4. Cost of sales rose to 59.3% of net sales in 1999 from 57.9% in 1997 and 59.2% in 1998, reflecting product mix and distribution costs.
  5. The company repurchased 5,478,379 common shares for $318.0 million in 1999, including $100.0 million from the Milton Hershey School Trust.
  6. The IRS proposed a deficiency tied to the Corporate Owned Life Insurance program totaling approximately $60.4 million including interest; the company filed a protest and is vigorously contesting it.
  7. Wal-Mart Stores accounted for approximately 15% of total 1999 net sales; the company's year-end current ratio was 1.8:1 and its capitalization ratio was 50%.

03—Questions

Frequently Asked Questions

  1. Why did net sales decline in 1999?

    The filing attributes the $464.7 million, or 10%, decline mainly to the divestiture of the U.S. pasta business, which reduced sales by $343.8 million, and to lower U.S. shipments of core confectionery and grocery products. Shipments were reduced by order fulfillment difficulties after the third-quarter 1999 start-up of a new integrated information system. Incremental sales from new confectionery products and gains in Canada and Mexico partly offset the decline.

  2. How much of 1999 net income came from the pasta sale?

    The after-tax gain on the sale of the pasta business was $165.0 million, or $1.17 per diluted share. Net income was $460.3 million in 1999, and excluding the gain, net income decreased $45.6 million or 13%.

  3. What steps is the company taking to fix customer service problems?

    The filing says improvements to systems and processes led to reduced order cycle times and much improved fill rates in the first quarter of 2000, though customer service has not yet fully returned to historical levels. A new 1.2 million square-foot distribution center is expected to become operational in spring 2000, with full utilization expected during the fall 2000 shipping season.

  4. What is the status of the IRS tax dispute?

    In January 1999 the company received a Notice of Proposed Deficiency from the IRS for 1989 through 1996, mainly relating to interest deductions on its Corporate Owned Life Insurance program. The total impact is approximately $60.4 million including interest as of December 31, 1999. The company filed a protest with the IRS Appeals section in April 1999, believes it fully complied with tax law, and continues to vigorously defend its position.

  5. How is the company returning capital to shareholders?

    In 1999 the company repurchased 5,478,379 shares of Common Stock for $318.0 million, and cash dividends paid on Common and Class B Stock totaled $136.7 million. In February 2000 the board declared a quarterly dividend of $.26 per Common share, and in October 1999 it approved an additional repurchase program of up to $200 million.

04—Continue

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