How did Hershey's core profitability trend in 2000?

Excluding the 1999 pasta business gain, net income increased $39.2 million, or 13%, from 1999 to 2000, and operating income was supported by a higher gross margin of 41.5% versus 40.7%. Reported net income declined because 1999 included a $165.0 million after-tax gain on the pasta sale.

What is the company's financial position at year-end 2000?

Total assets were $3,447,764 thousand and stockholders' equity was $1,175,036 thousand. The capitalization ratio was 49%, compared with 50% a year earlier, and the current ratio was 1.7:1, compared with 1.8:1.

What risks are highlighted in the filing?

The filing cites the IRS COLI deficiency, with possible additional federal assessments for 1997 and 1998 and state assessments for 1989 through 1998. It also notes dependence on Wal-Mart, which accounted for approximately 17% of 2000 net sales, and commodity price exposure in cocoa, sugar and other raw materials, which the company manages through forward purchasing and futures contracts.

How will the EITF 00-14 change affect reported results?

Effective with the quarter ending June 30, 2001, certain consumer coupon redemption costs and off-invoice allowances will be recorded as a reduction of net sales rather than in selling, marketing and administrative expenses. The filing says this may result in a material restatement that reduces both net sales and selling, marketing and administrative expenses, with no effect on net income.

HSY 10-K FY2000 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K filed March 15, 2001. Cited figures are marked; the original filing is the authoritative source.

Hershey Foods Corporation reported net sales of $4.22 billion^a for 2000, up $250.1 million, or 6%, from $3.97 billion in 1999.

Net income was $334.5 million^b, or $2.42 per diluted share, down $125.8 million, or 27%, from 1999. The decline reflects the $165.0 million after-tax gain on the 1999 sale of the pasta business; excluding that gain, net income increased $39.2 million, or 13%. Gross margin improved to 41.5% from 40.7%, driven by lower cocoa costs and fewer product returns, discounts and allowances, partly offset by higher distribution and warehousing costs.

Management expects gross margin to increase in 2001 and planned advertising spending to be significantly higher. The balance sheet remained strong, with total assets of $3.45 billion^c, stockholders' equity of $1.18 billion, and a capitalization ratio of 49%, down from 50%. The company acquired Nabisco's intense and breath freshener mints and gum businesses for $135.0 million in December 2000.

Cash from operations was $412.2 million^d in 2000. Short-term borrowings rose to fund the acquisition and stock repurchases, and the company repurchased $99.9 million of common stock during the year. Cash dividends were $1.08 per common share for 2000, and the company adopted a stockholder protection rights agreement in December 2000.

The filing also discloses a $61.2 million IRS deficiency related to Corporate Owned Life Insurance, which the company paid in September 2000 while continuing to seek a refund. Wal-Mart accounted for approximately 17% of 2000 net sales. Effective with the quarter ending June 30, 2001, the company will adopt EITF Issue No. 00-14, which may materially reduce reported net sales and selling, marketing and administrative expenses by equal amounts, with no effect on net income.

02—Key points

Key Highlights

Net sales rose to $4,220,976 thousand in 2000, up $250.1 million, or 6%, from 1999.
Net income fell $125.8 million, or 27%, to $334.5 million, mainly because 1999 included a $165.0 million after-tax gain on the pasta business sale; excluding that gain, net income rose $39.2 million, or 13%.
Gross margin improved to 41.5% in 2000 from 40.7% in 1999, aided by lower cocoa costs and lower product returns, discounts and allowances.
Diluted earnings per share were $2.42 in 2000, compared with $3.26 in 1999.
Acquired Nabisco's intense and breath freshener mints and gum businesses for $135.0 million in December 2000, with combined 1999 sales of approximately $270 million.
Repurchased $99.9 million of common stock in 2000 and paid $61.2 million to the IRS to settle a COLI-related deficiency, with a refund claim pending.
Management expects gross margin to increase in 2001 and planned 2001 advertising spending to be significantly higher than in 2000.

03—Questions

Frequently Asked Questions

How did Hershey's core profitability trend in 2000?
Excluding the 1999 pasta business gain, net income increased $39.2 million, or 13%, from 1999 to 2000, and operating income was supported by a higher gross margin of 41.5% versus 40.7%. Reported net income declined because 1999 included a $165.0 million after-tax gain on the pasta sale.
What is the company's financial position at year-end 2000?
Total assets were $3,447,764 thousand and stockholders' equity was $1,175,036 thousand. The capitalization ratio was 49%, compared with 50% a year earlier, and the current ratio was 1.7:1, compared with 1.8:1.
What risks are highlighted in the filing?
The filing cites the IRS COLI deficiency, with possible additional federal assessments for 1997 and 1998 and state assessments for 1989 through 1998. It also notes dependence on Wal-Mart, which accounted for approximately 17% of 2000 net sales, and commodity price exposure in cocoa, sugar and other raw materials, which the company manages through forward purchasing and futures contracts.
How will the EITF 00-14 change affect reported results?
Effective with the quarter ending June 30, 2001, certain consumer coupon redemption costs and off-invoice allowances will be recorded as a reduction of net sales rather than in selling, marketing and administrative expenses. The filing says this may result in a material restatement that reduces both net sales and selling, marketing and administrative expenses, with no effect on net income.

04—Continue

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