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Share Name | Share Symbol | Market | Type |
---|---|---|---|
Hershey Company | NYSE:HSY | NYSE | Common Stock |
Price Change | % Change | Share Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|
2.62 | 1.34% | 198.50 | 199.06 | 191.61 | 195.64 | 3,395,945 | 01:00:00 |
|
x
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
¨
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
|
Delaware
|
|
23-0691590
|
(State or other jurisdiction of incorporation
or organization) |
|
(I.R.S. Employer Identification No.)
|
100 Crystal A Drive, Hershey, PA
17033 |
||
(Address of principal executive offices)
(Zip Code) |
||
717-534-4200
|
||
(Registrant’s telephone number, including area code)
|
||
Not Applicable
|
||
(Former name, former address and former fiscal year, if changed since last report)
|
Large accelerated filer
|
x
|
|
Accelerated filer
|
¨
|
|
Smaller reporting company
|
¨
|
|
|
|
|
|
|
|
|
|
|
Non-accelerated filer
|
¨
|
(Do not check if a smaller reporting company)
|
|
Emerging growth company
|
¨
|
|
|
||
|
||
|
||
|
||
|
||
|
||
|
||
|
||
|
||
|
||
|
||
|
|
|
|
||
|
||
|
||
|
||
|
||
|
||
|
||
|
||
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
||||||||||||
|
|
July 2, 2017
|
|
July 3, 2016
|
|
July 2, 2017
|
|
July 3, 2016
|
||||||||
Net sales
|
|
$
|
1,662,991
|
|
|
$
|
1,637,671
|
|
|
$
|
3,542,669
|
|
|
$
|
3,466,483
|
|
Cost of sales
|
|
899,781
|
|
|
890,273
|
|
|
1,872,899
|
|
|
1,901,709
|
|
||||
Gross profit
|
|
763,210
|
|
|
747,398
|
|
|
1,669,770
|
|
|
1,564,774
|
|
||||
Selling, marketing and administrative expense
|
|
445,888
|
|
|
462,531
|
|
|
907,788
|
|
|
934,265
|
|
||||
Long-lived asset impairment charges
|
|
—
|
|
|
—
|
|
|
208,712
|
|
|
—
|
|
||||
Business realignment costs
|
|
1,981
|
|
|
22,105
|
|
|
45,998
|
|
|
28,238
|
|
||||
Operating profit
|
|
315,341
|
|
|
262,762
|
|
|
507,272
|
|
|
602,271
|
|
||||
Interest expense, net
|
|
24,126
|
|
|
21,338
|
|
|
47,867
|
|
|
42,343
|
|
||||
Other (income) expense, net
|
|
10,098
|
|
|
8,128
|
|
|
9,927
|
|
|
(13,097
|
)
|
||||
Income before income taxes
|
|
281,117
|
|
|
233,296
|
|
|
449,478
|
|
|
573,025
|
|
||||
Provision for income taxes
|
|
78,390
|
|
|
87,340
|
|
|
148,503
|
|
|
197,237
|
|
||||
Net income including noncontrolling interest
|
|
202,727
|
|
|
145,956
|
|
|
300,975
|
|
|
375,788
|
|
||||
Less: Net loss attributable to noncontrolling interest
|
|
(774
|
)
|
|
—
|
|
|
(27,570
|
)
|
|
—
|
|
||||
Net income attributable to The Hershey Company
|
|
$
|
203,501
|
|
|
$
|
145,956
|
|
|
$
|
328,545
|
|
|
$
|
375,788
|
|
|
|
|
|
|
|
|
|
|
||||||||
Net income per share—basic:
|
|
|
|
|
|
|
|
|
||||||||
Common stock
|
|
$
|
0.98
|
|
|
$
|
0.70
|
|
|
$
|
1.58
|
|
|
$
|
1.79
|
|
Class B common stock
|
|
$
|
0.89
|
|
|
$
|
0.64
|
|
|
$
|
1.44
|
|
|
$
|
1.64
|
|
|
|
|
|
|
|
|
|
|
||||||||
Net income per share—diluted:
|
|
|
|
|
|
|
|
|
||||||||
Common stock
|
|
$
|
0.95
|
|
|
$
|
0.68
|
|
|
$
|
1.53
|
|
|
$
|
1.74
|
|
Class B common stock
|
|
$
|
0.89
|
|
|
$
|
0.64
|
|
|
$
|
1.44
|
|
|
$
|
1.63
|
|
|
|
|
|
|
|
|
|
|
||||||||
Dividends paid per share:
|
|
|
|
|
|
|
|
|
||||||||
Common stock
|
|
$
|
0.618
|
|
|
$
|
0.583
|
|
|
$
|
1.236
|
|
|
$
|
1.166
|
|
Class B common stock
|
|
$
|
0.562
|
|
|
$
|
0.530
|
|
|
$
|
1.124
|
|
|
$
|
1.060
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
||||||||||||||||||||||||||||||||||||||||||||
|
|
July 2, 2017
|
|
July 3, 2016
|
|
July 2, 2017
|
|
July 3, 2016
|
||||||||||||||||||||||||||||||||||||||||
|
|
Pre-Tax Amount
|
|
Tax (Expense) Benefit
|
|
After-Tax Amount
|
|
Pre-Tax Amount
|
|
Tax (Expense) Benefit
|
|
After-Tax Amount
|
|
Pre-Tax Amount
|
|
Tax (Expense) Benefit
|
|
After-Tax Amount
|
|
Pre-Tax Amount
|
|
Tax (Expense) Benefit
|
|
After-Tax Amount
|
||||||||||||||||||||||||
Net income including noncontrolling interest
|
|
|
|
|
|
$
|
202,727
|
|
|
|
|
|
|
$
|
145,956
|
|
|
|
|
|
|
$
|
300,975
|
|
|
|
|
|
|
$
|
375,788
|
|
||||||||||||||||
Other comprehensive income (loss), net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
Foreign currency translation adjustments
|
|
$
|
4,322
|
|
|
$
|
—
|
|
|
4,322
|
|
|
$
|
1,420
|
|
|
$
|
—
|
|
|
1,420
|
|
|
$
|
18,273
|
|
|
$
|
—
|
|
|
18,273
|
|
|
$
|
13,586
|
|
|
$
|
—
|
|
|
13,586
|
|
||||
Pension and post-retirement benefit plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
Net actuarial loss and prior service cost
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(29,806
|
)
|
|
11,350
|
|
|
(18,456
|
)
|
|
(196
|
)
|
|
74
|
|
|
(122
|
)
|
|
(29,806
|
)
|
|
11,350
|
|
|
(18,456
|
)
|
||||||||||||
Reclassification to earnings
|
|
7,091
|
|
|
(10,984
|
)
|
|
(3,893
|
)
|
|
25,625
|
|
|
(9,781
|
)
|
|
15,844
|
|
|
14,244
|
|
|
(13,695
|
)
|
|
549
|
|
|
34,305
|
|
|
(13,360
|
)
|
|
20,945
|
|
||||||||||||
Cash flow hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
Losses on cash flow hedging derivatives
|
|
(707
|
)
|
|
703
|
|
|
(4
|
)
|
|
(21,072
|
)
|
|
7,283
|
|
|
(13,789
|
)
|
|
(2,206
|
)
|
|
882
|
|
|
(1,324
|
)
|
|
(54,981
|
)
|
|
19,048
|
|
|
(35,933
|
)
|
||||||||||||
Reclassification to earnings
|
|
2,379
|
|
|
(1,282
|
)
|
|
1,097
|
|
|
(3,867
|
)
|
|
1,692
|
|
|
(2,175
|
)
|
|
5,412
|
|
|
(2,448
|
)
|
|
2,964
|
|
|
(11,776
|
)
|
|
4,689
|
|
|
(7,087
|
)
|
||||||||||||
Total other comprehensive income (loss), net of tax
|
|
$
|
13,085
|
|
|
$
|
(11,563
|
)
|
|
1,522
|
|
|
$
|
(27,700
|
)
|
|
$
|
10,544
|
|
|
(17,156
|
)
|
|
$
|
35,527
|
|
|
$
|
(15,187
|
)
|
|
20,340
|
|
|
$
|
(48,672
|
)
|
|
$
|
21,727
|
|
|
(26,945
|
)
|
||||
Total comprehensive income including noncontrolling interest
|
|
|
|
|
|
$
|
204,249
|
|
|
|
|
|
|
$
|
128,800
|
|
|
|
|
|
|
$
|
321,315
|
|
|
|
|
|
|
$
|
348,843
|
|
||||||||||||||||
Comprehensive loss attributable to noncontrolling interest
|
|
|
|
|
|
(698
|
)
|
|
|
|
|
|
(213
|
)
|
|
|
|
|
|
(27,154
|
)
|
|
|
|
|
|
(1,289
|
)
|
||||||||||||||||||||
Comprehensive income attributable to The Hershey Company
|
|
|
|
|
|
$
|
204,947
|
|
|
|
|
|
|
$
|
129,013
|
|
|
|
|
|
|
$
|
348,469
|
|
|
|
|
|
|
$
|
350,132
|
|
|
|
July 2, 2017
|
|
December 31, 2016
|
||||
ASSETS
|
|
(unaudited)
|
|
|
||||
Current assets:
|
|
|
|
|
||||
Cash and cash equivalents
|
|
$
|
214,062
|
|
|
$
|
296,967
|
|
Accounts receivable—trade, net
|
|
417,457
|
|
|
581,381
|
|
||
Inventories
|
|
936,437
|
|
|
745,678
|
|
||
Prepaid expenses and other
|
|
343,573
|
|
|
192,752
|
|
||
Total current assets
|
|
1,911,529
|
|
|
1,816,778
|
|
||
Property, plant and equipment, net
|
|
2,033,790
|
|
|
2,177,248
|
|
||
Goodwill
|
|
818,068
|
|
|
812,344
|
|
||
Other intangibles
|
|
378,271
|
|
|
492,737
|
|
||
Other assets
|
|
182,980
|
|
|
168,365
|
|
||
Deferred income taxes
|
|
55,590
|
|
|
56,861
|
|
||
Total assets
|
|
$
|
5,380,228
|
|
|
$
|
5,524,333
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
||||
Current liabilities:
|
|
|
|
|
||||
Accounts payable
|
|
$
|
471,545
|
|
|
$
|
522,536
|
|
Accrued liabilities
|
|
641,743
|
|
|
750,986
|
|
||
Accrued income taxes
|
|
6,863
|
|
|
3,207
|
|
||
Short-term debt
|
|
621,965
|
|
|
632,471
|
|
||
Current portion of long-term debt
|
|
89
|
|
|
243
|
|
||
Total current liabilities
|
|
1,742,205
|
|
|
1,909,443
|
|
||
Long-term debt
|
|
2,349,756
|
|
|
2,347,455
|
|
||
Other long-term liabilities
|
|
397,204
|
|
|
400,161
|
|
||
Deferred income taxes
|
|
21,081
|
|
|
39,587
|
|
||
Total liabilities
|
|
4,510,246
|
|
|
4,696,646
|
|
||
|
|
|
|
|
||||
Stockholders’ equity:
|
|
|
|
|
||||
The Hershey Company stockholders’ equity
|
|
|
|
|
||||
Preferred stock, shares issued: none at July 2, 2017 and December 31, 2016
|
|
—
|
|
|
—
|
|
||
Common stock, shares issued: 299,281,967 at July 2, 2017 and December 31, 2016
|
|
299,281
|
|
|
299,281
|
|
||
Class B common stock, shares issued: 60,619,777 at July 2, 2017 and December 31, 2016
|
|
60,620
|
|
|
60,620
|
|
||
Additional paid-in capital
|
|
904,588
|
|
|
869,857
|
|
||
Retained earnings
|
|
6,187,409
|
|
|
6,115,961
|
|
||
Treasury—common stock shares, at cost: 147,487,088 at July 2, 2017 and 147,642,009 at December 31, 2016
|
|
(6,240,629
|
)
|
|
(6,183,975
|
)
|
||
Accumulated other comprehensive loss
|
|
(355,964
|
)
|
|
(375,888
|
)
|
||
Total—The Hershey Company stockholders’ equity
|
|
855,305
|
|
|
785,856
|
|
||
Noncontrolling interest in subsidiary
|
|
14,677
|
|
|
41,831
|
|
||
Total stockholders’ equity
|
|
869,982
|
|
|
827,687
|
|
||
Total liabilities and stockholders’ equity
|
|
$
|
5,380,228
|
|
|
$
|
5,524,333
|
|
|
Six Months Ended
|
||||||
|
July 2, 2017
|
|
July 3, 2016
|
||||
Operating Activities
|
|
|
|
||||
Net income including noncontrolling interests
|
$
|
300,975
|
|
|
$
|
375,788
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
||||
Depreciation and amortization
|
132,079
|
|
|
156,779
|
|
||
Stock-based compensation expense
|
24,557
|
|
|
26,208
|
|
||
Deferred income taxes
|
(44,484
|
)
|
|
(5,615
|
)
|
||
Impairment of long-lived assets (see Note 7)
|
208,712
|
|
|
—
|
|
||
Write-down of equity investments
|
10,263
|
|
|
15,061
|
|
||
Gain on settlement of SGM liability (see Note 2)
|
—
|
|
|
(26,650
|
)
|
||
Other
|
26,418
|
|
|
32,479
|
|
||
Changes in assets and liabilities, net of business acquisitions:
|
|
|
|
||||
Accounts receivable—trade, net
|
163,924
|
|
|
118,932
|
|
||
Inventories
|
(190,759
|
)
|
|
(110,987
|
)
|
||
Prepaid expenses and other current assets
|
(40,162
|
)
|
|
(32,909
|
)
|
||
Accounts payable and accrued liabilities
|
(174,004
|
)
|
|
(140,937
|
)
|
||
Accrued income taxes
|
(74,638
|
)
|
|
(38,301
|
)
|
||
Contributions to pension and other benefits plans
|
(19,449
|
)
|
|
(16,544
|
)
|
||
Other assets and liabilities
|
12,302
|
|
|
15,406
|
|
||
Net cash provided by operating activities
|
335,734
|
|
|
368,710
|
|
||
Investing Activities
|
|
|
|
||||
Capital additions (including software)
|
(84,687
|
)
|
|
(104,109
|
)
|
||
Proceeds from sales of property, plant and equipment
|
865
|
|
|
1,657
|
|
||
Equity investments in tax credit qualifying partnerships
|
(22,415
|
)
|
|
(16,763
|
)
|
||
Business acquisitions, net of cash and cash equivalents acquired
|
—
|
|
|
(285,374
|
)
|
||
Net cash used in investing activities
|
(106,237
|
)
|
|
(404,589
|
)
|
||
Financing Activities
|
|
|
|
||||
Net (decrease) increase in short-term debt
|
(13,696
|
)
|
|
630,121
|
|
||
Repayment of long-term debt
|
(150
|
)
|
|
—
|
|
||
Payment of SGM liability (see Note 2)
|
—
|
|
|
(35,762
|
)
|
||
Cash dividends paid
|
(256,128
|
)
|
|
(243,139
|
)
|
||
Repurchase of common stock
|
(99,992
|
)
|
|
(452,580
|
)
|
||
Exercise of stock options
|
54,826
|
|
|
39,147
|
|
||
Net cash used in financing activities
|
(315,140
|
)
|
|
(62,213
|
)
|
||
Effect of exchange rate changes on cash and cash equivalents
|
2,738
|
|
|
1,748
|
|
||
Decrease in cash and cash equivalents
|
(82,905
|
)
|
|
(96,344
|
)
|
||
Cash and cash equivalents, beginning of period
|
296,967
|
|
|
346,529
|
|
||
Cash and cash equivalents, end of period
|
$
|
214,062
|
|
|
$
|
250,185
|
|
Supplemental Disclosure
|
|
|
|
||||
Interest paid
|
$
|
49,565
|
|
|
$
|
42,005
|
|
Income taxes paid
|
265,756
|
|
|
239,501
|
|
|
|
Preferred Stock
|
|
Common Stock
|
|
Class B Common Stock
|
|
Additional Paid-in Capital
|
|
Retained Earnings
|
|
Treasury Common Stock
|
|
Accumulated Other Comprehensive Income (Loss)
|
|
Noncontrolling Interest in Subsidiary
|
|
Total Stockholders’ Equity
|
||||||||||||||||||
Balance, December 31, 2016
|
|
$
|
—
|
|
|
$
|
299,281
|
|
|
$
|
60,620
|
|
|
$
|
869,857
|
|
|
$
|
6,115,961
|
|
|
$
|
(6,183,975
|
)
|
|
$
|
(375,888
|
)
|
|
$
|
41,831
|
|
|
$
|
827,687
|
|
Net income (loss)
|
|
|
|
|
|
|
|
|
|
328,545
|
|
|
|
|
|
|
(27,570
|
)
|
|
300,975
|
|
|||||||||||||||
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,924
|
|
|
416
|
|
|
20,340
|
|
|||||||||||||||
Dividends (including dividend equivalents):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||
Common Stock, $1.236 per share
|
|
|
|
|
|
|
|
|
|
(188,961
|
)
|
|
|
|
|
|
|
|
(188,961
|
)
|
||||||||||||||||
Class B Common Stock, $1.124 per share
|
|
|
|
|
|
|
|
|
|
(68,136
|
)
|
|
|
|
|
|
|
|
(68,136
|
)
|
||||||||||||||||
Stock-based compensation
|
|
|
|
|
|
|
|
23,243
|
|
|
|
|
|
|
|
|
|
|
23,243
|
|
||||||||||||||||
Exercise of stock options and incentive-based transactions
|
|
|
|
|
|
|
|
11,488
|
|
|
|
|
43,338
|
|
|
|
|
|
|
54,826
|
|
|||||||||||||||
Repurchase of common stock
|
|
|
|
|
|
|
|
|
|
|
|
(99,992
|
)
|
|
|
|
|
|
(99,992
|
)
|
||||||||||||||||
Balance, July 2, 2017
|
|
$
|
—
|
|
|
$
|
299,281
|
|
|
$
|
60,620
|
|
|
$
|
904,588
|
|
|
$
|
6,187,409
|
|
|
$
|
(6,240,629
|
)
|
|
$
|
(355,964
|
)
|
|
$
|
14,677
|
|
|
$
|
869,982
|
|
Goodwill
|
$
|
128,110
|
|
Trademarks
|
91,200
|
|
|
Other intangible assets
|
60,900
|
|
|
Other assets, primarily current assets, net of cash acquired totaling $674
|
12,375
|
|
|
Current liabilities
|
(7,211
|
)
|
|
Net assets acquired
|
$
|
285,374
|
|
|
|
North America
|
|
International and Other
|
|
Total
|
||||||
Balance at December 31, 2016
|
|
$
|
792,190
|
|
|
$
|
20,154
|
|
|
$
|
812,344
|
|
Foreign currency translation
|
|
3,975
|
|
|
1,749
|
|
|
5,724
|
|
|||
Balance at July 2, 2017
|
|
796,165
|
|
|
21,903
|
|
|
818,068
|
|
|
|
July 2, 2017
|
|
December 31, 2016
|
||||||||||||
|
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
||||||||
Intangible assets subject to amortization:
|
|
|
|
|
|
|
|
|
||||||||
Trademarks
|
|
$
|
270,383
|
|
|
$
|
(30,953
|
)
|
|
$
|
317,023
|
|
|
$
|
(30,458
|
)
|
Customer-related
|
|
127,414
|
|
|
(30,729
|
)
|
|
200,409
|
|
|
(36,482
|
)
|
||||
Patents
|
|
16,725
|
|
|
(14,822
|
)
|
|
16,426
|
|
|
(13,700
|
)
|
||||
Total
|
|
414,522
|
|
|
(76,504
|
)
|
|
533,858
|
|
|
(80,640
|
)
|
||||
|
|
|
|
|
|
|
|
|
||||||||
Intangible assets not subject to amortization:
|
|
|
|
|
|
|
|
|
||||||||
Trademarks
|
|
40,253
|
|
|
|
|
39,519
|
|
|
|
||||||
Total other intangible assets
|
|
$
|
378,271
|
|
|
|
|
$
|
492,737
|
|
|
|
December 31,
|
|
July 2, 2017
|
|
December 31, 2016
|
||||
1.60% Notes due 2018
|
|
300,000
|
|
|
300,000
|
|
||
4.125% Notes due 2020
|
|
350,000
|
|
|
350,000
|
|
||
8.8% Debentures due 2021
|
|
84,715
|
|
|
84,715
|
|
||
2.625% Notes due 2023
|
|
250,000
|
|
|
250,000
|
|
||
3.20% Notes due 2025
|
|
300,000
|
|
|
300,000
|
|
||
2.30% Notes due 2026
|
|
500,000
|
|
|
500,000
|
|
||
7.2% Debentures due 2027
|
|
193,639
|
|
|
193,639
|
|
||
3.375% Notes due 2046
|
|
300,000
|
|
|
300,000
|
|
||
Lease obligations
|
|
84,890
|
|
|
83,619
|
|
||
Net impact of interest rate swaps, debt issuance costs and unamortized debt discounts
|
|
(13,399
|
)
|
|
(14,275
|
)
|
||
Total long-term debt
|
|
2,349,845
|
|
|
2,347,698
|
|
||
Less—current portion
|
|
89
|
|
|
243
|
|
||
Long-term portion
|
|
$
|
2,349,756
|
|
|
$
|
2,347,455
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
||||||||||||
|
|
July 2, 2017
|
|
July 3, 2016
|
|
July 2, 2017
|
|
July 3, 2016
|
||||||||
Interest expense
|
|
$
|
25,299
|
|
|
$
|
22,997
|
|
|
$
|
50,253
|
|
|
$
|
46,522
|
|
Capitalized interest
|
|
(875
|
)
|
|
(1,386
|
)
|
|
(1,859
|
)
|
|
(3,561
|
)
|
||||
Interest expense
|
|
24,424
|
|
|
21,611
|
|
|
48,394
|
|
|
42,961
|
|
||||
Interest income
|
|
(298
|
)
|
|
(273
|
)
|
|
(527
|
)
|
|
(618
|
)
|
||||
Interest expense, net
|
|
$
|
24,126
|
|
|
$
|
21,338
|
|
|
$
|
47,867
|
|
|
$
|
42,343
|
|
December 31,
|
|
July 2, 2017
|
|
December 31, 2016
|
||||||||||||
|
|
Assets (1)
|
|
Liabilities (1)
|
|
Assets (1)
|
|
Liabilities (1)
|
||||||||
Derivatives designated as cash flow hedging instruments:
|
|
|
|
|
|
|
|
|
||||||||
Foreign exchange contracts
|
|
$
|
398
|
|
|
$
|
1,853
|
|
|
$
|
2,229
|
|
|
$
|
809
|
|
|
|
|
|
|
|
|
|
|
||||||||
Derivatives designated as fair value hedging instruments:
|
|
|
|
|
|
|
|
|
||||||||
Interest rate swap agreements
|
|
1,941
|
|
|
—
|
|
|
1,768
|
|
|
—
|
|
||||
|
|
|
|
|
|
|
|
|
||||||||
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
||||||||
Commodities futures and options (2)
|
|
14,050
|
|
|
179
|
|
|
2,348
|
|
|
10,000
|
|
||||
Deferred compensation derivatives
|
|
645
|
|
|
—
|
|
|
717
|
|
|
—
|
|
||||
Foreign exchange contracts
|
|
3
|
|
|
—
|
|
|
—
|
|
|
16
|
|
||||
|
|
14,698
|
|
|
179
|
|
|
3,065
|
|
|
10,016
|
|
||||
Total
|
|
$
|
17,037
|
|
|
$
|
2,032
|
|
|
$
|
7,062
|
|
|
$
|
10,825
|
|
(1)
|
Derivatives assets are classified on our balance sheet within prepaid expenses and other as well as other assets. Derivative liabilities are classified on our balance sheet within accrued liabilities and other long-term liabilities.
|
(2)
|
As of
July 2, 2017
, assets and liabilities include the net of assets of
$52,895
and liabilities of
$41,337
associated with cash transfers receivable or payable on commodities futures contracts reflecting the change in quoted market prices on the last trading day for the period. The comparable amounts reflected on a net basis in liabilities at
December 31, 2016
were assets of
$140,885
and liabilities of
$150,872
. At
July 2, 2017
and
December 31, 2016
, the remaining amount reflected in assets and liabilities relates to the fair value of other non-exchange traded derivative instruments, respectively.
|
|
|
Non-designated Hedges
|
|
Cash Flow Hedges
|
||||||||||||||||||||
|
|
|
||||||||||||||||||||||
|
|
Gains (losses) recognized in income (a)
|
|
Losses recognized in other comprehensive income (“OCI”) (effective portion)
|
|
Gains (losses) reclassified from accumulated OCI into income (effective portion) (b)
|
||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
||||||||||||
Commodities futures and options
|
|
$
|
(32,519
|
)
|
|
$
|
39,011
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(399
|
)
|
|
$
|
6,139
|
|
Foreign exchange contracts
|
|
44
|
|
|
(253
|
)
|
|
(707
|
)
|
|
(3,916
|
)
|
|
390
|
|
|
(761
|
)
|
||||||
Interest rate swap agreements
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(17,156
|
)
|
|
(2,370
|
)
|
|
(1,511
|
)
|
||||||
Deferred compensation derivatives
|
|
(632
|
)
|
|
418
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||
Total
|
|
$
|
(33,107
|
)
|
|
$
|
39,176
|
|
|
$
|
(707
|
)
|
|
$
|
(21,072
|
)
|
|
$
|
(2,379
|
)
|
|
$
|
3,867
|
|
(a)
|
Gains (losses) recognized in income for non-designated commodities futures and options contracts were included in cost of sales. Gains (losses) recognized in income for non-designated foreign currency forward exchange contracts and deferred compensation derivatives were included in selling, marketing and administrative expenses.
|
(b)
|
Gains (losses) reclassified from AOCI into income were included in cost of sales for commodities futures and options contracts and for foreign currency forward exchange contracts designated as hedges of purchases of inventory or other productive assets. Other gains (losses) for foreign currency forward exchange contracts were included in selling, marketing and administrative expenses. Losses reclassified from AOCI into income for interest rate swap agreements were included in interest expense.
|
|
|
Non-designated Hedges
|
|
Cash Flow Hedges
|
||||||||||||||||||||
|
|
|
||||||||||||||||||||||
|
|
Gains (losses) recognized in income (a)
|
|
Losses recognized in other comprehensive income (“OCI”) (effective portion)
|
|
Gains (losses) reclassified from accumulated OCI into income (effective portion) (b)
|
||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
||||||||||||
Commodities futures and options
|
|
$
|
(38,055
|
)
|
|
$
|
70
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(837
|
)
|
|
$
|
15,869
|
|
Foreign exchange contracts
|
|
(51
|
)
|
|
(457
|
)
|
|
(2,206
|
)
|
|
(8,032
|
)
|
|
218
|
|
|
(1,022
|
)
|
||||||
Interest rate swap agreements
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(46,949
|
)
|
|
(4,793
|
)
|
|
(3,071
|
)
|
||||||
Deferred compensation derivatives
|
|
645
|
|
|
821
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||
Total
|
|
$
|
(37,461
|
)
|
|
$
|
434
|
|
|
$
|
(2,206
|
)
|
|
$
|
(54,981
|
)
|
|
$
|
(5,412
|
)
|
|
$
|
11,776
|
|
(a)
|
Gains (losses) recognized in income for non-designated commodities futures and options contracts were included in cost of sales. Gains (losses) recognized in income for non-designated foreign currency forward exchange contracts and deferred compensation derivatives were included in selling, marketing and administrative expenses.
|
(b)
|
Gains (losses) reclassified from AOCI into income were included in cost of sales for commodities futures and options contracts and for foreign currency forward exchange contracts designated as hedges of purchases of inventory or other productive assets. Other gains (losses) for foreign currency forward exchange contracts were included in selling, marketing and administrative expenses. Losses reclassified from AOCI into income for interest rate swap agreements were included in interest expense.
|
Level 1
– Based on unadjusted quoted prices for identical assets or liabilities in an active market.
|
Level 2
– Based on observable market-based inputs or unobservable inputs that are corroborated by market data.
|
Level 3
– Based on unobservable inputs that reflect the entity's own assumptions about the assumptions that a market participant would use in pricing the asset or liability.
|
|
|
Assets (Liabilities)
|
||||||||||||||
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
||||||||
July 2, 2017:
|
|
|
|
|
|
|
|
|
||||||||
Derivative Instruments:
|
|
|
|
|
|
|
|
|
||||||||
Assets:
|
|
|
|
|
|
|
|
|
||||||||
Foreign exchange contracts (1)
|
|
$
|
—
|
|
|
$
|
401
|
|
|
$
|
—
|
|
|
$
|
401
|
|
Interest rate swap agreements (2)
|
|
—
|
|
|
1,941
|
|
|
—
|
|
|
1,941
|
|
||||
Deferred compensation derivatives (3)
|
|
—
|
|
|
645
|
|
|
—
|
|
|
645
|
|
||||
Commodities futures and options (4)
|
|
14,050
|
|
|
—
|
|
|
—
|
|
|
14,050
|
|
||||
Liabilities:
|
|
|
|
|
|
|
|
|
||||||||
Foreign exchange contracts (1)
|
|
—
|
|
|
1,853
|
|
|
—
|
|
|
1,853
|
|
||||
Commodities futures and options (4)
|
|
179
|
|
|
—
|
|
|
—
|
|
|
179
|
|
||||
December 31, 2016:
|
|
|
|
|
|
|
|
|
||||||||
Assets:
|
|
|
|
|
|
|
|
|
||||||||
Foreign exchange contracts (1)
|
|
$
|
—
|
|
|
$
|
2,229
|
|
|
$
|
—
|
|
|
$
|
2,229
|
|
Interest rate swap agreements (2)
|
|
—
|
|
|
1,768
|
|
|
—
|
|
|
1,768
|
|
||||
Deferred compensation derivatives (3)
|
|
—
|
|
|
717
|
|
|
—
|
|
|
717
|
|
||||
Commodities futures and options (4)
|
|
2,348
|
|
|
—
|
|
|
—
|
|
|
2,348
|
|
||||
Liabilities:
|
|
|
|
|
|
|
|
|
||||||||
Foreign exchange contracts (1)
|
|
—
|
|
|
825
|
|
|
—
|
|
|
825
|
|
||||
Commodities futures and options (4)
|
|
10,000
|
|
|
—
|
|
|
—
|
|
|
10,000
|
|
(1)
|
The fair value of foreign currency forward exchange contracts is the difference between the contract and current market foreign currency exchange rates at the end of the period. We estimate the fair value of foreign currency forward exchange contracts on a quarterly basis by obtaining market quotes of spot and forward rates for contracts with similar terms, adjusted where necessary for maturity differences.
|
(2)
|
The fair value of interest rate swap agreements represents the difference in the present value of cash flows calculated at the contracted interest rates and at current market interest rates at the end of the period. We calculate the fair value of interest rate swap agreements quarterly based on the quoted market price for the same or similar financial instruments.
|
(3)
|
The fair value of deferred compensation derivatives is based on quoted prices for market interest rates and a broad market equity index.
|
(4)
|
The fair value of commodities futures and options contracts is based on quoted market prices.
|
|
|
Fair Value
|
|
Carrying Value
|
||||||||||||
|
|
July 2, 2017
|
|
December 31, 2016
|
|
July 2, 2017
|
|
December 31, 2016
|
||||||||
Current portion of long-term debt
|
|
$
|
89
|
|
|
$
|
243
|
|
|
$
|
89
|
|
|
$
|
243
|
|
Long-term debt
|
|
2,410,521
|
|
|
2,379,054
|
|
|
2,349,756
|
|
|
2,347,455
|
|
||||
Total
|
|
2,410,610
|
|
|
$
|
2,379,297
|
|
|
2,349,845
|
|
|
$
|
2,347,698
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
||||||||||||
|
|
July 2, 2017
|
|
July 3, 2016
|
|
July 2, 2017
|
|
July 3, 2016
|
||||||||
Margin for Growth Program:
|
|
|
|
|
|
|
|
|
||||||||
Severance
|
|
$
|
888
|
|
|
$
|
—
|
|
|
$
|
30,455
|
|
|
$
|
—
|
|
Accelerated depreciation
|
|
6,873
|
|
|
—
|
|
|
6,873
|
|
|
—
|
|
||||
Other program costs
|
|
6,381
|
|
|
—
|
|
|
11,203
|
|
|
—
|
|
||||
Operational Optimization Program:
|
|
|
|
|
|
|
|
|
||||||||
Accelerated depreciation and amortization
|
|
—
|
|
|
33,965
|
|
|
—
|
|
|
33,478
|
|
||||
Severance
|
|
—
|
|
|
9,928
|
|
|
13,828
|
|
|
17,355
|
|
||||
Other program costs
|
|
312
|
|
|
3,376
|
|
|
(917
|
)
|
|
9,408
|
|
||||
2015 Productivity Initiative:
|
|
|
|
|
|
|
|
|
||||||||
Pension settlement charge
|
|
—
|
|
|
12,646
|
|
|
—
|
|
|
12,646
|
|
||||
Severance
|
|
—
|
|
|
(469
|
)
|
|
—
|
|
|
(1,763
|
)
|
||||
Other program costs
|
|
—
|
|
|
2,649
|
|
|
—
|
|
|
5,401
|
|
||||
Total business realignment costs
|
|
$
|
14,454
|
|
|
$
|
62,095
|
|
|
$
|
61,442
|
|
|
$
|
76,525
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
||||||||||||
|
|
July 2, 2017
|
|
July 3, 2016
|
|
July 2, 2017
|
|
July 3, 2016
|
||||||||
Cost of sales
|
|
$
|
5,772
|
|
|
$
|
33,965
|
|
|
$
|
6,262
|
|
|
$
|
33,478
|
|
Selling, marketing and administrative expense
|
|
6,701
|
|
|
6,025
|
|
|
9,182
|
|
|
14,809
|
|
||||
Business realignment costs
|
|
1,981
|
|
|
22,105
|
|
|
45,998
|
|
|
28,238
|
|
||||
Costs associated with business realignment activities
|
|
$
|
14,454
|
|
|
$
|
62,095
|
|
|
$
|
61,442
|
|
|
$
|
76,525
|
|
|
Total
|
||
Liability balance at December 31, 2016
|
$
|
3,725
|
|
2017 business realignment charges (1)
|
53,591
|
|
|
Cash payments
|
(13,394
|
)
|
|
Other, net
|
(171
|
)
|
|
Liability balance at July 2, 2017 (reported within accrued and other long-term liabilities)
|
$
|
43,751
|
|
(1)
|
The costs reflected in the liability roll-forward above do not include items charged directly to expense, such as accelerated depreciation and amortization and certain of the third-party charges associated with various programs, as those items are not reflected in the business realignment liability in our Consolidated Balance Sheets.
|
|
|
Pension Benefits
|
|
Other Benefits
|
||||||||||||
|
|
Three Months Ended
|
|
Three Months Ended
|
||||||||||||
|
|
July 2, 2017
|
|
July 3, 2016
|
|
July 2, 2017
|
|
July 3, 2016
|
||||||||
Service cost
|
|
$
|
5,051
|
|
|
$
|
5,699
|
|
|
$
|
66
|
|
|
$
|
75
|
|
Interest cost
|
|
10,200
|
|
|
10,999
|
|
|
2,204
|
|
|
2,429
|
|
||||
Expected return on plan assets
|
|
(14,344
|
)
|
|
(14,832
|
)
|
|
—
|
|
|
—
|
|
||||
Amortization of prior service (credit) cost
|
|
(1,455
|
)
|
|
(261
|
)
|
|
186
|
|
|
144
|
|
||||
Amortization of net loss
|
|
8,360
|
|
|
8,801
|
|
|
—
|
|
|
6
|
|
||||
Settlement loss
|
|
—
|
|
|
16,938
|
|
|
—
|
|
|
—
|
|
||||
Total net periodic benefit cost
|
|
$
|
7,812
|
|
|
$
|
27,344
|
|
|
$
|
2,456
|
|
|
$
|
2,654
|
|
|
|
Pension Benefits
|
|
Other Benefits
|
||||||||||||
|
|
Six Months Ended
|
|
Six Months Ended
|
||||||||||||
|
|
July 2, 2017
|
|
July 3, 2016
|
|
July 2, 2017
|
|
July 3, 2016
|
||||||||
Service cost
|
|
$
|
10,225
|
|
|
$
|
11,583
|
|
|
$
|
131
|
|
|
$
|
149
|
|
Interest cost
|
|
20,499
|
|
|
21,834
|
|
|
4,412
|
|
|
4,865
|
|
||||
Expected return on plan assets
|
|
(28,698
|
)
|
|
(29,373
|
)
|
|
—
|
|
|
—
|
|
||||
Amortization of prior service (credit) cost
|
|
(2,911
|
)
|
|
(523
|
)
|
|
373
|
|
|
288
|
|
||||
Amortization of net loss (gain)
|
|
16,782
|
|
|
17,608
|
|
|
—
|
|
|
(6
|
)
|
||||
Settlement loss
|
|
—
|
|
|
16,938
|
|
|
—
|
|
|
—
|
|
||||
Total net periodic benefit cost
|
|
$
|
15,897
|
|
|
$
|
38,067
|
|
|
$
|
4,916
|
|
|
$
|
5,296
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
||||||||||||
|
|
July 2, 2017
|
|
July 3, 2016
|
|
July 2, 2017
|
|
July 3, 2016
|
||||||||
Pre-tax compensation expense
|
|
$
|
12,435
|
|
|
$
|
14,530
|
|
|
$
|
24,557
|
|
|
$
|
26,208
|
|
Related income tax benefit
|
|
3,230
|
|
|
4,693
|
|
|
7,048
|
|
|
8,780
|
|
Stock Options
|
Shares
|
Weighted-Average
Exercise Price (per share) |
Weighted-Average Remaining
Contractual Term |
Aggregate Intrinsic Value
|
|||||
Outstanding as of December 31, 2016
|
6,192,008
|
|
$
|
82.67
|
|
6.2 years
|
|
||
Granted
|
1,086,175
|
|
$
|
108.05
|
|
|
|
||
Exercised
|
(908,712
|
)
|
$
|
70.13
|
|
|
|
||
Forfeited
|
(186,032
|
)
|
$
|
103.43
|
|
|
|
||
Outstanding as of July 2, 2017
|
6,183,439
|
|
$
|
88.35
|
|
6.2 years
|
$
|
150,493
|
|
Options exercisable as of July 2, 2017
|
3,870,198
|
|
$
|
80.60
|
|
4.7 years
|
$
|
124,202
|
|
|
|
Six Months Ended
|
||||
|
|
July 2, 2017
|
|
July 3, 2016
|
||
Dividend yields
|
|
2.4
|
%
|
|
2.4
|
%
|
Expected volatility
|
|
17.2
|
%
|
|
16.8
|
%
|
Risk-free interest rates
|
|
2.2
|
%
|
|
1.5
|
%
|
Expected term in years
|
|
6.8
|
|
|
6.8
|
|
Performance Stock Units and Restricted Stock Units
|
|
Number of units
|
|
Weighted-average grant date fair value
for equity awards (per unit)
|
|
Outstanding as of December 31, 2016
|
|
828,228
|
|
|
$102.66
|
Granted
|
|
418,369
|
|
|
$111.06
|
Performance assumption change
|
|
19,671
|
|
|
$99.42
|
Vested
|
|
(205,327
|
)
|
|
$113.05
|
Forfeited
|
|
(109,328
|
)
|
|
$108.44
|
Outstanding as of July 2, 2017
|
|
951,613
|
|
|
$102.89
|
|
|
Six Months Ended
|
||||||
|
|
July 2, 2017
|
|
July 3, 2016
|
||||
Units granted
|
|
418,369
|
|
|
514,089
|
|
||
Weighted-average fair value at date of grant
|
|
$
|
111.06
|
|
|
$
|
92.95
|
|
Monte Carlo simulation assumptions:
|
|
|
|
|
||||
Estimated values
|
|
$
|
46.85
|
|
|
$
|
38.02
|
|
Dividend yields
|
|
2.3
|
%
|
|
2.5
|
%
|
||
Expected volatility
|
|
20.4
|
%
|
|
17.0
|
%
|
•
|
North America
-
This segment is responsible for our traditional chocolate and non-chocolate confectionery market position, as well as our grocery and growing snacks market positions, in the United States and Canada. This includes developing and growing our business in chocolate and non-chocolate confectionery, pantry, food service and other snacking product lines.
|
•
|
International and Other
-
International and Other is a combination of all other operating segments that are not individually material, including those geographic regions where we operate outside of North America. We currently have operations and manufacture product in China, Mexico, Brazil, India and Malaysia, primarily for consumers in these regions, and also distribute and sell confectionery products in export markets of Asia, Latin America, Middle East, Europe, Africa and other regions. This segment also includes our global retail operations, including Hershey's Chocolate World stores in Hershey, Pennsylvania, New York City, Las Vegas, Shanghai, Niagara Falls (Ontario), Dubai, and Singapore, as well as operations associated with licensing the use of certain of the Company's trademarks and products to third parties around the world.
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
||||||||||||
|
|
July 2, 2017
|
|
July 3, 2016
|
|
July 2, 2017
|
|
July 3, 2016
|
|||||||||
Net sales:
|
|
|
|
|
|
|
|
|
|||||||||
North America
|
|
$
|
1,477,014
|
|
|
$
|
1,444,841
|
|
|
$
|
3,154,160
|
|
|
$
|
3,078,312
|
|
|
International and Other
|
|
185,977
|
|
|
192,830
|
|
|
388,509
|
|
|
388,171
|
|
|||||
Total
|
|
$
|
1,662,991
|
|
|
$
|
1,637,671
|
|
|
$
|
3,542,669
|
|
|
$
|
3,466,483
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Segment income (loss):
|
|
|
|
|
|
|
|
|
|||||||||
North America
|
|
$
|
460,382
|
|
|
$
|
425,723
|
|
|
$
|
1,013,520
|
|
|
$
|
955,113
|
|
|
International and Other
|
|
8,368
|
|
|
(3,462
|
)
|
|
10,091
|
|
|
(16,695
|
)
|
|||||
Total segment income
|
|
468,750
|
|
|
422,261
|
|
|
1,023,611
|
|
|
938,418
|
|
|||||
Unallocated corporate expense (1)
|
|
123,173
|
|
|
126,623
|
|
|
242,823
|
|
|
248,794
|
|
|||||
Unallocated mark-to-market losses (gains) on commodity derivatives
|
|
11,556
|
|
|
(39,886
|
)
|
|
(5,532
|
)
|
|
(4,940
|
)
|
|||||
Long-lived asset impairment charges
|
|
—
|
|
|
—
|
|
|
208,712
|
|
|
—
|
|
|||||
Costs associated with business realignment activities
|
|
14,454
|
|
|
62,095
|
|
|
61,442
|
|
|
76,525
|
|
|||||
Non-service related pension expense
|
|
4,215
|
|
|
9,205
|
|
|
8,583
|
|
|
14,306
|
|
|||||
Acquisition and integration costs
|
|
11
|
|
|
1,462
|
|
|
311
|
|
|
1,462
|
|
|||||
Operating profit
|
|
315,341
|
|
|
262,762
|
|
|
507,272
|
|
|
602,271
|
|
|||||
Interest expense, net
|
|
24,126
|
|
|
21,338
|
|
|
47,867
|
|
|
42,343
|
|
|||||
Other (income) expense, net
|
|
10,098
|
|
|
8,128
|
|
|
9,927
|
|
|
(13,097
|
)
|
|||||
Income before income taxes
|
|
$
|
281,117
|
|
|
$
|
233,296
|
|
|
$
|
449,478
|
|
|
$
|
573,025
|
|
(1)
|
Includes centrally-managed (a) corporate functional costs relating to legal, treasury, finance, and human resources, (b) expenses associated with the oversight and administration of our global operations, including warehousing, distribution and manufacturing, information systems and global shared services, (c) non-cash stock-based compensation expense, and (d) other gains or losses that are not integral to segment performance.
|
|
||||||||||||||||
|
|
Three Months Ended
|
|
Six Months Ended
|
||||||||||||
|
|
July 2, 2017
|
|
July 3, 2016
|
|
July 2, 2017
|
|
July 3, 2016
|
||||||||
Net losses (gains) on mark-to-market valuation of commodity derivative positions
|
|
$
|
32,519
|
|
|
$
|
(39,011
|
)
|
|
$
|
38,055
|
|
|
$
|
(70
|
)
|
Net losses on commodity derivative positions allocated to segment income
|
|
20,963
|
|
|
875
|
|
|
43,587
|
|
|
4,870
|
|
||||
Net losses (gains) on mark-to-market valuation of commodity derivative positions remaining in unallocated derivative losses (gains)
|
|
$
|
11,556
|
|
|
$
|
(39,886
|
)
|
|
$
|
(5,532
|
)
|
|
$
|
(4,940
|
)
|
|
|
Three Months Ended
|
|
Six Months Ended
|
||||||||||||
|
July 2, 2017
|
|
July 3, 2016
|
|
July 2, 2017
|
|
July 3, 2016
|
|||||||||
North America
|
$
|
41,751
|
|
|
$
|
39,844
|
|
|
$
|
82,988
|
|
|
$
|
78,786
|
|
|
International and Other
|
9,747
|
|
|
13,085
|
|
|
22,713
|
|
|
24,008
|
|
|||||
Corporate (1)
|
15,629
|
|
|
43,937
|
|
|
26,378
|
|
|
53,985
|
|
|||||
Total
|
$
|
67,127
|
|
|
$
|
96,866
|
|
|
$
|
132,079
|
|
|
$
|
156,779
|
|
(1)
|
Corporate includes non-cash asset-related accelerated depreciation and amortization related to business realignment activities, as discussed in Note 7. Such amounts are not included within our measure of segment income.
|
|
Six Months Ended July 2, 2017
|
|||||
|
Shares
|
|
Dollars
|
|||
|
|
|
In thousands
|
|||
Shares repurchased in the open market under pre-approved share repurchase programs
|
—
|
|
|
$
|
—
|
|
Shares repurchased to replace Treasury Stock issued for stock options and incentive compensation
|
886,675
|
|
|
99,992
|
|
|
Total share repurchases
|
886,675
|
|
|
99,992
|
|
|
Shares issued for stock options and incentive compensation
|
(1,041,596
|
)
|
|
$
|
(43,338
|
)
|
Net change
|
(154,921
|
)
|
|
$
|
56,654
|
|
|
Noncontrolling Interest
|
||
Balance, December 31, 2016
|
$
|
41,831
|
|
Net loss attributable to noncontrolling interest
|
(27,570
|
)
|
|
Other comprehensive income - foreign currency translation adjustments
|
416
|
|
|
Balance, July 2, 2017
|
$
|
14,677
|
|
|
|
Three Months Ended
|
||||||||||||||
|
|
July 2, 2017
|
|
July 3, 2016
|
||||||||||||
|
|
Common Stock
|
|
Class B Common Stock
|
|
Common Stock
|
|
Class B Common Stock
|
||||||||
Basic earnings per share:
|
|
|
|
|
|
|
|
|
||||||||
Numerator:
|
|
|
|
|
|
|
|
|
||||||||
Allocation of distributed earnings (cash dividends paid)
|
|
$
|
94,043
|
|
|
$
|
34,068
|
|
|
$
|
88,615
|
|
|
$
|
32,129
|
|
Allocation of undistributed earnings
|
|
55,370
|
|
|
20,020
|
|
|
18,528
|
|
|
6,684
|
|
||||
Total earnings—basic
|
|
$
|
149,413
|
|
|
$
|
54,088
|
|
|
$
|
107,143
|
|
|
$
|
38,813
|
|
|
|
|
|
|
|
|
|
|
||||||||
Denominator (shares in thousands):
|
|
|
|
|
|
|
|
|
||||||||
Total weighted-average shares—basic
|
|
152,466
|
|
|
60,620
|
|
|
152,774
|
|
|
60,620
|
|
||||
|
|
|
|
|
|
|
|
|
||||||||
Earnings Per Share—basic
|
|
$
|
0.98
|
|
|
$
|
0.89
|
|
|
$
|
0.70
|
|
|
$
|
0.64
|
|
|
|
|
|
|
|
|
|
|
||||||||
Diluted earnings per share:
|
|
|
|
|
|
|
|
|
||||||||
Numerator:
|
|
|
|
|
|
|
|
|
||||||||
Allocation of total earnings used in basic computation
|
|
$
|
149,413
|
|
|
$
|
54,088
|
|
|
$
|
107,143
|
|
|
$
|
38,813
|
|
Reallocation of total earnings as a result of conversion of Class B common stock to Common stock
|
|
54,088
|
|
|
—
|
|
|
38,813
|
|
|
—
|
|
||||
Reallocation of undistributed earnings
|
|
—
|
|
|
(149
|
)
|
|
—
|
|
|
(36
|
)
|
||||
Total earnings—diluted
|
|
$
|
203,501
|
|
|
$
|
53,939
|
|
|
$
|
145,956
|
|
|
$
|
38,777
|
|
|
|
|
|
|
|
|
|
|
||||||||
Denominator (shares in thousands):
|
|
|
|
|
|
|
|
|
||||||||
Number of shares used in basic computation
|
|
152,466
|
|
|
60,620
|
|
|
152,774
|
|
|
60,620
|
|
||||
Weighted-average effect of dilutive securities:
|
|
|
|
|
|
|
|
|
||||||||
Conversion of Class B common stock to Common shares outstanding
|
|
60,620
|
|
|
—
|
|
|
60,620
|
|
|
—
|
|
||||
Employee stock options
|
|
1,229
|
|
|
—
|
|
|
973
|
|
|
—
|
|
||||
Performance and restricted stock options
|
|
325
|
|
|
—
|
|
|
137
|
|
|
—
|
|
||||
Total weighted-average shares—diluted
|
|
214,640
|
|
|
60,620
|
|
|
214,504
|
|
|
60,620
|
|
||||
|
|
|
|
|
|
|
|
|
||||||||
Earnings Per Share—diluted
|
|
$
|
0.95
|
|
|
$
|
0.89
|
|
|
$
|
0.68
|
|
|
$
|
0.64
|
|
|
|
Six Months Ended
|
||||||||||||||
|
|
July 2, 2017
|
|
July 3, 2016
|
||||||||||||
|
|
Common Stock
|
|
Class B Common Stock
|
|
Common Stock
|
|
Class B Common Stock
|
||||||||
Basic earnings per share:
|
|
|
|
|
|
|
|
|
||||||||
Numerator:
|
|
|
|
|
|
|
|
|
||||||||
Allocation of distributed earnings (cash dividends paid)
|
|
$
|
187,992
|
|
|
$
|
68,136
|
|
|
$
|
178,882
|
|
|
$
|
64,257
|
|
Allocation of undistributed earnings
|
|
53,180
|
|
|
19,237
|
|
|
97,737
|
|
|
34,912
|
|
||||
Total earnings—basic
|
|
$
|
241,172
|
|
|
$
|
87,373
|
|
|
$
|
276,619
|
|
|
$
|
99,169
|
|
|
|
|
|
|
|
|
|
|
||||||||
Denominator (shares in thousands):
|
|
|
|
|
|
|
|
|
||||||||
Total weighted-average shares—basic
|
|
152,393
|
|
|
60,620
|
|
|
154,283
|
|
|
60,620
|
|
||||
|
|
|
|
|
|
|
|
|
||||||||
Earnings Per Share—basic
|
|
$
|
1.58
|
|
|
$
|
1.44
|
|
|
$
|
1.79
|
|
|
$
|
1.64
|
|
|
|
|
|
|
|
|
|
|
||||||||
Diluted earnings per share:
|
|
|
|
|
|
|
|
|
||||||||
Numerator:
|
|
|
|
|
|
|
|
|
||||||||
Allocation of total earnings used in basic computation
|
|
$
|
241,172
|
|
|
$
|
87,373
|
|
|
$
|
276,619
|
|
|
$
|
99,169
|
|
Reallocation of total earnings as a result of conversion of Class B common stock to Common stock
|
|
87,373
|
|
|
—
|
|
|
99,169
|
|
|
—
|
|
||||
Reallocation of undistributed earnings
|
|
—
|
|
|
(145
|
)
|
|
—
|
|
|
(191
|
)
|
||||
Total earnings—diluted
|
|
$
|
328,545
|
|
|
$
|
87,228
|
|
|
$
|
375,788
|
|
|
$
|
98,978
|
|
|
|
|
|
|
|
|
|
|
||||||||
Denominator (shares in thousands):
|
|
|
|
|
|
|
|
|
||||||||
Number of shares used in basic computation
|
|
152,393
|
|
|
60,620
|
|
|
154,283
|
|
|
60,620
|
|
||||
Weighted-average effect of dilutive securities:
|
|
|
|
|
|
|
|
|
||||||||
Conversion of Class B common stock to Common shares outstanding
|
|
60,620
|
|
|
—
|
|
|
60,620
|
|
|
—
|
|
||||
Employee stock options
|
|
1,248
|
|
|
—
|
|
|
989
|
|
|
—
|
|
||||
Performance and restricted stock options
|
|
324
|
|
|
—
|
|
|
162
|
|
|
—
|
|
||||
Total weighted-average shares—diluted
|
|
214,585
|
|
|
60,620
|
|
|
216,054
|
|
|
60,620
|
|
||||
|
|
|
|
|
|
|
|
|
||||||||
Earnings Per Share—diluted
|
|
$
|
1.53
|
|
|
$
|
1.44
|
|
|
$
|
1.74
|
|
|
$
|
1.63
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
||||||||||||
|
|
July 2, 2017
|
|
July 3, 2016
|
|
July 2, 2017
|
|
July 3, 2016
|
||||||||
Write-down of equity investments in partnerships qualifying for tax credits
|
|
$
|
10,263
|
|
|
$
|
9,468
|
|
|
$
|
10,263
|
|
|
$
|
15,061
|
|
Settlement of SGM liability (see Note 2)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(26,650
|
)
|
||||
Other (income) expense, net
|
|
(165
|
)
|
|
(1,340
|
)
|
|
(336
|
)
|
|
(1,508
|
)
|
||||
Total
|
|
$
|
10,098
|
|
|
$
|
8,128
|
|
|
$
|
9,927
|
|
|
$
|
(13,097
|
)
|
|
|
July 2, 2017
|
|
December 31, 2016
|
||||
Inventories:
|
|
|
|
|
||||
Raw materials
|
|
$
|
303,553
|
|
|
$
|
315,239
|
|
Goods in process
|
|
123,386
|
|
|
88,490
|
|
||
Finished goods
|
|
691,334
|
|
|
528,587
|
|
||
Inventories at FIFO
|
|
1,118,273
|
|
|
932,316
|
|
||
Adjustment to LIFO
|
|
(181,836
|
)
|
|
(186,638
|
)
|
||
Total inventories
|
|
$
|
936,437
|
|
|
$
|
745,678
|
|
|
|
|
|
|
||||
Property, plant and equipment:
|
|
|
|
|
||||
Land
|
|
$
|
106,662
|
|
|
$
|
103,865
|
|
Buildings
|
|
1,191,483
|
|
|
1,238,634
|
|
||
Machinery and equipment
|
|
2,871,889
|
|
|
3,001,552
|
|
||
Construction in progress
|
|
200,411
|
|
|
230,987
|
|
||
Property, plant and equipment, gross
|
|
4,370,445
|
|
|
4,575,038
|
|
||
Accumulated depreciation
|
|
(2,336,655
|
)
|
|
(2,397,790
|
)
|
||
Property, plant and equipment, net
|
|
$
|
2,033,790
|
|
|
$
|
2,177,248
|
|
|
|
|
|
|
||||
Other assets:
|
|
|
|
|
||||
Capitalized software, net
|
|
$
|
100,867
|
|
|
$
|
95,301
|
|
Income tax receivable
|
|
—
|
|
|
1,449
|
|
||
Other non-current assets
|
|
82,113
|
|
|
71,615
|
|
||
Total other assets
|
|
$
|
182,980
|
|
|
$
|
168,365
|
|
|
|
|
|
|
||||
Accrued liabilities:
|
|
|
|
|
||||
Payroll, compensation and benefits
|
|
$
|
194,368
|
|
|
$
|
240,080
|
|
Advertising and promotion
|
|
280,645
|
|
|
358,573
|
|
||
Other
|
|
166,730
|
|
|
152,333
|
|
||
Total accrued liabilities
|
|
$
|
641,743
|
|
|
$
|
750,986
|
|
|
|
|
|
|
||||
Other long-term liabilities:
|
|
|
|
|
||||
Post-retirement benefits liabilities
|
|
$
|
215,802
|
|
|
$
|
220,270
|
|
Pension benefits liabilities
|
|
61,748
|
|
|
65,687
|
|
||
Other
|
|
119,654
|
|
|
114,204
|
|
||
Total other long-term liabilities
|
|
$
|
397,204
|
|
|
$
|
400,161
|
|
|
|
|
|
|
||||
Accumulated other comprehensive loss:
|
|
|
|
|
||||
Foreign currency translation adjustments
|
|
$
|
(92,756
|
)
|
|
$
|
(110,613
|
)
|
Pension and post-retirement benefit plans, net of tax
|
|
(206,742
|
)
|
|
(207,169
|
)
|
||
Cash flow hedges, net of tax
|
|
(56,466
|
)
|
|
(58,106
|
)
|
||
Total accumulated other comprehensive loss
|
|
$
|
(355,964
|
)
|
|
$
|
(375,888
|
)
|
•
|
Overview and Outlook
|
•
|
Non-GAAP Information
|
•
|
Consolidated Results of Operations
|
•
|
Segment Results
|
•
|
Liquidity and Capital Resources
|
|
|
Three Months Ended
|
|
Six Months Ended
|
||||||||
|
|
July 2, 2017
|
|
July 3, 2016
|
|
July 2, 2017
|
|
July 3, 2016
|
||||
As reported gross margin
|
|
45.9
|
%
|
|
45.6
|
%
|
|
47.1
|
%
|
|
45.1
|
%
|
Non-GAAP gross margin (1)
|
|
47.1
|
%
|
|
45.5
|
%
|
|
47.3
|
%
|
|
46.2
|
%
|
|
|
|
|
|
|
|
|
|
||||
As reported operating profit margin
|
|
19.0
|
%
|
|
16.0
|
%
|
|
14.3
|
%
|
|
17.4
|
%
|
Non-GAAP operating profit margin (2)
|
|
20.8
|
%
|
|
18.1
|
%
|
|
22.0
|
%
|
|
19.9
|
%
|
|
|
|
|
|
|
|
|
|
||||
As reported effective tax rate
|
|
27.9
|
%
|
|
37.4
|
%
|
|
33.0
|
%
|
|
34.4
|
%
|
Non-GAAP effective tax rate (3)
|
|
25.0
|
%
|
|
31.4
|
%
|
|
28.7
|
%
|
|
33.5
|
%
|
(1)
|
Calculated as non-GAAP gross profit as a percentage of net sales for each period presented.
|
(2)
|
Calculated as non-GAAP operating profit as a percentage of net sales for each period presented.
|
(3)
|
Calculated as non-GAAP provision for income taxes as a percentage of non-GAAP income before taxes (calculated as non-GAAP operating profit minus non-GAAP interest expense, net plus or minus non-GAAP other (income) expense, net).
|
|
Three Months Ended July 2, 2017
|
|||||||
|
Percentage Change as Reported
|
|
Impact of Foreign Currency Exchange
|
|
Percentage Change on Constant Currency Basis
|
|||
North America segment
|
|
|
|
|
|
|||
Canada
|
6.8
|
%
|
|
(5.6
|
)%
|
|
12.4
|
%
|
Total North America segment
|
2.2
|
%
|
|
(0.3
|
)%
|
|
2.5
|
%
|
|
|
|
|
|
|
|||
International and Other segment
|
|
|
|
|
|
|||
Mexico
|
13.9
|
%
|
|
(3.0
|
)%
|
|
16.9
|
%
|
Brazil
|
12.4
|
%
|
|
9.6
|
%
|
|
2.8
|
%
|
India
|
5.4
|
%
|
|
3.7
|
%
|
|
1.7
|
%
|
Greater China
|
(31.2
|
)%
|
|
(2.4
|
)%
|
|
(28.8
|
)%
|
Total International and Other segment
|
(3.6
|
)%
|
|
(0.1
|
)%
|
|
(3.5
|
)%
|
|
|
|
|
|
|
|||
Total Company
|
1.5
|
%
|
|
(0.3
|
)%
|
|
1.8
|
%
|
|
Six Months Ended July 2, 2017
|
|||||||
|
Percentage Change as Reported
|
|
Impact of Foreign Currency Exchange
|
|
Percentage Change on Constant Currency Basis
|
|||
North America segment
|
|
|
|
|
|
|||
Canada
|
6.1
|
%
|
|
(1.0
|
)%
|
|
7.1
|
%
|
Total North America segment
|
2.5
|
%
|
|
—
|
%
|
|
2.5
|
%
|
|
|
|
|
|
|
|||
International and Other segment
|
|
|
|
|
|
|||
Mexico
|
6.3
|
%
|
|
(8.5
|
)%
|
|
14.8
|
%
|
Brazil
|
31.3
|
%
|
|
20.4
|
%
|
|
10.9
|
%
|
India
|
11.0
|
%
|
|
2.3
|
%
|
|
8.7
|
%
|
Greater China
|
(14.4
|
)%
|
|
(2.8
|
)%
|
|
(11.6
|
)%
|
Total International and Other segment
|
0.1
|
%
|
|
(0.3
|
)%
|
|
0.4
|
%
|
|
|
|
|
|
|
|||
Total Company
|
2.2
|
%
|
|
(0.1
|
)%
|
|
2.3
|
%
|
|
2017 (Projected)
|
|
2016
|
Reported EPS – Diluted
|
$3.41 - $3.60
|
|
$3.34
|
Derivative mark-to-market losses
|
—
|
|
0.66
|
Business realignment costs (including Margin for Growth Program costs)
|
0.30 - 0.40
|
|
0.42
|
Acquisition and integration costs
|
—
|
|
0.02
|
Non-service related pension expense
|
0.06
|
|
0.08
|
Settlement of SGM liability
|
—
|
|
(0.12)
|
Long-lived asset impairment charges
|
0.85
|
|
0.01
|
Adjusted EPS – Diluted
|
$4.72 - $4.81
|
|
$4.41
|
|
|
Three Months Ended
|
|
Percent
|
|
Six Months Ended
|
|
Percent
|
||||||||||||||
|
|
July 2, 2017
|
|
July 3, 2016
|
|
Change
|
|
July 2, 2017
|
|
July 3, 2016
|
|
Change
|
||||||||||
In millions of dollars except per share amounts
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Net Sales
|
|
$
|
1,663.0
|
|
|
$
|
1,637.7
|
|
|
1.5
|
%
|
|
$
|
3,542.7
|
|
|
$
|
3,466.5
|
|
|
2.2
|
%
|
Cost of Sales
|
|
899.8
|
|
|
890.3
|
|
|
1.1
|
%
|
|
1,872.9
|
|
|
1,901.7
|
|
|
(1.5
|
)%
|
||||
Gross Profit
|
|
763.2
|
|
|
747.4
|
|
|
2.1
|
%
|
|
1,669.8
|
|
|
1,564.8
|
|
|
6.7
|
%
|
||||
Gross Margin
|
|
45.9
|
%
|
|
45.6
|
%
|
|
|
|
47.1
|
%
|
|
45.1
|
%
|
|
|
||||||
SM&A Expense
|
|
445.9
|
|
|
462.5
|
|
|
(3.6
|
)%
|
|
907.8
|
|
|
934.3
|
|
|
(2.8
|
)%
|
||||
SM&A Expense as a percent of net sales
|
|
26.8
|
%
|
|
28.2
|
%
|
|
|
|
25.6
|
%
|
|
27.0
|
%
|
|
|
||||||
Long-lived Asset Impairment Charges
|
|
—
|
|
|
—
|
|
|
NM
|
|
|
208.7
|
|
|
—
|
|
|
NM
|
|
||||
Business Realignment Costs
|
|
2.0
|
|
|
22.1
|
|
|
(91.0
|
)%
|
|
46.0
|
|
|
28.2
|
|
|
62.9
|
%
|
||||
Operating Profit
|
|
315.3
|
|
|
262.8
|
|
|
20.0
|
%
|
|
507.3
|
|
|
602.3
|
|
|
(15.8
|
)%
|
||||
Operating Profit Margin
|
|
19.0
|
%
|
|
16.0
|
%
|
|
|
|
14.3
|
%
|
|
17.4
|
%
|
|
|
||||||
Interest Expense, Net
|
|
24.1
|
|
|
21.3
|
|
|
13.1
|
%
|
|
47.9
|
|
|
42.3
|
|
|
13.0
|
%
|
||||
Other (Income) Expense, Net
|
|
10.1
|
|
|
8.2
|
|
|
24.2
|
%
|
|
9.9
|
|
|
(13.0
|
)
|
|
NM
|
|
||||
Provision for Income Taxes
|
|
78.4
|
|
|
87.3
|
|
|
(10.2
|
)%
|
|
148.5
|
|
|
197.2
|
|
|
(24.7
|
)%
|
||||
Effective Income Tax Rate
|
|
27.9
|
%
|
|
37.4
|
%
|
|
|
|
33.0
|
%
|
|
34.4
|
%
|
|
|
||||||
Net Income Including Noncontrolling Interest
|
|
202.7
|
|
|
146.0
|
|
|
38.9
|
%
|
|
301.0
|
|
|
375.8
|
|
|
(19.9
|
)%
|
||||
Less: Net Loss Attributable to Noncontrolling Interest
|
|
(0.8
|
)
|
|
—
|
|
|
NM
|
|
|
(27.5
|
)
|
|
—
|
|
|
NM
|
|
||||
Net Income Attributable to The Hershey Company
|
|
$
|
203.5
|
|
|
$
|
146.0
|
|
|
39.4
|
%
|
|
$
|
328.5
|
|
|
$
|
375.8
|
|
|
(12.6
|
)%
|
Net Income Per Share—Diluted
|
|
$
|
0.95
|
|
|
$
|
0.68
|
|
|
39.7
|
%
|
|
$
|
1.53
|
|
|
$
|
1.74
|
|
|
(12.1
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Note: Percentage changes may not compute directly as shown due to rounding of amounts presented above.
|
||||||||||||||||||||||
NM = not meaningful.
|
For the 12 week period ended
|
|
July 8, 2017
|
|
July 9, 2016
|
||
Hershey's Consumer Takeaway Increase (Decrease)
|
|
5.2
|
%
|
|
(1.1
|
)%
|
Hershey's Market Share Increase (Decrease)
|
|
0.2
|
|
|
(0.7
|
)
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
||||||||||||
|
|
July 2, 2017
|
|
July 3, 2016
|
|
July 2, 2017
|
|
July 3, 2016
|
|||||||||
Net Sales:
|
|
|
|
|
|
|
|
|
|||||||||
North America
|
|
$
|
1,477,014
|
|
|
$
|
1,444,841
|
|
|
$
|
3,154,160
|
|
|
$
|
3,078,312
|
|
|
International and Other
|
|
185,977
|
|
|
192,830
|
|
|
388,509
|
|
|
388,171
|
|
|||||
Total
|
|
$
|
1,662,991
|
|
|
$
|
1,637,671
|
|
|
$
|
3,542,669
|
|
|
$
|
3,466,483
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Segment Income (Loss):
|
|
|
|
|
|
|
|
|
|||||||||
North America
|
|
$
|
460,382
|
|
|
$
|
425,723
|
|
|
$
|
1,013,520
|
|
|
$
|
955,113
|
|
|
International and Other
|
|
8,368
|
|
|
(3,462
|
)
|
|
10,091
|
|
|
(16,695
|
)
|
|||||
Total segment income
|
|
468,750
|
|
|
422,261
|
|
|
1,023,611
|
|
|
938,418
|
|
|||||
Unallocated corporate expense (1)
|
|
123,173
|
|
|
126,623
|
|
|
242,823
|
|
|
248,794
|
|
|||||
Unallocated mark-to-market losses (gains) on commodity derivatives (2)
|
|
11,556
|
|
|
(39,886
|
)
|
|
(5,532
|
)
|
|
(4,940
|
)
|
|||||
Long-lived asset impairment charges
|
|
—
|
|
|
—
|
|
|
208,712
|
|
|
—
|
|
|||||
Costs associated with business realignment activities
|
|
14,454
|
|
|
62,095
|
|
|
61,442
|
|
|
76,525
|
|
|||||
Non-service related pension expense
|
|
4,215
|
|
|
9,205
|
|
|
8,583
|
|
|
14,306
|
|
|||||
Acquisition and integration costs
|
|
11
|
|
|
1,462
|
|
|
311
|
|
|
1,462
|
|
|||||
Operating profit
|
|
315,341
|
|
|
262,762
|
|
|
507,272
|
|
|
602,271
|
|
|||||
Interest expense, net
|
|
24,126
|
|
|
21,338
|
|
|
47,867
|
|
|
42,343
|
|
|||||
Other (income) expense, net
|
|
10,098
|
|
|
8,128
|
|
|
9,927
|
|
|
(13,097
|
)
|
|||||
Income before income taxes
|
|
$
|
281,117
|
|
|
$
|
233,296
|
|
|
$
|
449,478
|
|
|
$
|
573,025
|
|
(1)
|
Includes centrally-managed (a) corporate functional costs relating to legal, treasury, finance and human resources, (b) expenses associated with the oversight and administration of our global operations, including warehousing, distribution and manufacturing, information systems and global shared services, (c) non-cash stock-based compensation expense and (d) other gains or losses that are not integral to segment performance.
|
(2)
|
Reflects gains and losses on commodity derivative instruments that are excluded from segment income until the related inventory is sold. See Note 11 to the Consolidated Financial Statements.
|
|
|
Three Months Ended
|
|
Percent
|
|
Six Months Ended
|
|
Percent
|
||||||||||||||
|
|
July 2, 2017
|
|
July 3, 2016
|
|
Change
|
|
July 2, 2017
|
|
July 3, 2016
|
|
Change
|
||||||||||
In millions of dollars
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Net sales
|
|
$
|
1,477.0
|
|
|
$
|
1,444.8
|
|
|
2.2
|
%
|
|
$
|
3,154.2
|
|
|
$
|
3,078.3
|
|
|
2.5
|
%
|
Segment income
|
|
460.4
|
|
|
425.7
|
|
|
8.1
|
%
|
|
1,013.5
|
|
|
955.1
|
|
|
6.1
|
%
|
||||
Segment margin
|
|
31.2
|
%
|
|
29.5
|
%
|
|
|
|
32.1
|
%
|
|
31.0
|
%
|
|
|
|
|
Three Months Ended
|
|
Percent
|
|
Six Months Ended
|
|
Percent
|
||||||||||||||
|
|
July 2, 2017
|
|
July 3, 2016
|
|
Change
|
|
July 2, 2017
|
|
July 3, 2016
|
|
Change
|
||||||||||
In millions of dollars
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Net sales
|
|
$
|
186.0
|
|
|
$
|
192.8
|
|
|
(3.6
|
)%
|
|
$
|
388.5
|
|
|
$
|
388.2
|
|
|
0.1
|
%
|
Segment income (loss)
|
|
8.4
|
|
|
(3.5
|
)
|
|
NM
|
|
|
10.1
|
|
|
(16.7
|
)
|
|
NM
|
|
||||
Segment margin
|
|
4.5
|
%
|
|
(1.8
|
)%
|
|
|
|
2.6
|
%
|
|
(4.3
|
)%
|
|
|
|
|
Six Months Ended
|
||||||
In millions of dollars
|
|
July 2, 2017
|
|
July 3, 2016
|
||||
Net cash provided by (used in):
|
|
|
|
|
||||
Operating activities
|
|
$
|
335.7
|
|
|
$
|
368.7
|
|
Investing activities
|
|
(106.2
|
)
|
|
(404.5
|
)
|
||
Financing activities
|
|
(315.1
|
)
|
|
(62.2
|
)
|
||
Effect of exchange rate changes on cash and cash equivalents
|
|
2.7
|
|
|
1.7
|
|
||
Decrease in cash and cash equivalents
|
|
$
|
(82.9
|
)
|
|
$
|
(96.3
|
)
|
•
|
Working capital (comprised of trade accounts receivable, inventory, accounts payable and accrued liabilities) used cash of $200.8 million in the
2017
period compared to $133.0 million during the same period of
2016
. This $67.8 million fluctuation was mainly driven by:
|
◦
|
$45.0 million increase in cash generated by accounts receivable, primarily attributed to higher net sales during the first six months of 2017 versus 2016.
|
◦
|
$79.8 million increase in cash used by inventories, due to a higher year-over-year build up of U.S. inventories to satisfy seasonal core and variety product requirements, coupled with a higher investment in inventory in Brazil, driven by volume and pricing growth in that market.
|
◦
|
$33.1 million increase in cash used by accounts payable and accrued liabilities, mainly due to the timing of payments for trade-related and other accounts payables.
|
•
|
Cash used by accrued income taxes increased $36.3 million, mainly due to the timing of estimated tax payments in the
2017
period compared to the same period of
2016
.
|
•
|
The net uses of cash noted above were offset in part by higher net income adjusted for non-cash charges to operations (including depreciation, amortization, stock-based compensation, deferred income taxes, long-lived asset impairment charges, write-down of equity investments, the gain on settlement of the SGM liability and other charges). Our incremental net income adjusted for non-cash charges increased by $84.5 million in the
2017
period relative to the same period of
2016
.
|
•
|
Capital spending
. We spent $19.4 million less for property, plant and equipment, including capitalized software, during the first
six
months of
2017
compared to the same period of
2016
. For the full year
2017
, we expect capital expenditures, including capitalized software, to approximate $270 million to $290 million.
|
•
|
Investments in partnerships qualifying for tax credits
. We make investments in partnership entities that in turn make equity investments in projects eligible to receive federal historic and energy tax credits. We invested approximately $5.7 million more in projects qualifying for tax credits during the first
six
months of
2017
compared to the same period of
2016
.
|
•
|
Business acquisitions
. In April 2016, we acquired Ripple Brand Collective, LLC for $285 million. Further details regarding our business acquisition activity are provided in Note 2 to the Unaudited Consolidated Financial Statements.
|
•
|
Short-term borrowings, net.
In addition to utilizing cash on hand, we use short-term borrowings (commercial paper and bank borrowings) to fund seasonal working capital requirements and ongoing business needs. During the first
six
months of
2017
, we had a net reduction in short-term borrowings of $14 million primarily due to repayments on short-term foreign bank borrowings. During the first
six
months of
2016
, we generated cash flow of $742 million from proceeds on short-term commercial paper issuances, partially offset by a $112 million reduction in short-term foreign bank borrowings.
|
•
|
Share repurchases
. We used cash for total share repurchases of $100 million during the first
six
months of
2017
pursuant to our practice of replenishing shares issued for stock options and incentive compensation. We used cash for total share repurchases of $453 million during the first
six
months of
2016
, which also included shares repurchased in the open market under pre-approved share repurchase programs.
|
•
|
Dividend payments
. Total dividend payments to holders of our Common Stock and Class B Common Stock were $256.1 million during the first
six
months of
2017
, an increase of $13.0 million compared to $243.1 million in the same period of
2016
.
|
•
|
Proceeds from the exercise of stock options.
We received $54.8 million from employee exercises of stock options, net of payments of employee taxes withheld from share-based awards, during the first
six
months of
2017
, an increase of $15.7 million compared to $39.1 million in the same period of
2016
.
|
•
|
Other.
In February 2016, we used $35.8 million to purchase the remaining 20% of the outstanding shares of SGM.
|
•
|
Issues or concerns related to the quality and safety of our products, ingredients or packaging could cause a product recall and/or result in harm to the Company's reputation, negatively impacting our operating results;
|
•
|
Increases in raw material and energy costs along with the availability of adequate supplies of raw materials could affect future financial results;
|
•
|
Price increases may not be sufficient to offset cost increases and maintain profitability or may result in sales volume declines associated with pricing elasticity;
|
•
|
Market demand for new and existing products could decline;
|
•
|
Increased marketplace competition could hurt our business;
|
•
|
Disruption to our manufacturing operations or supply chain could impair our ability to produce or deliver finished products, resulting in a negative impact on our operating results;
|
•
|
Our financial results may be adversely impacted by the failure to successfully execute or integrate acquisitions, divestitures and joint ventures;
|
•
|
Changes in governmental laws and regulations could increase our costs and liabilities or impact demand for our products;
|
•
|
Political, economic and/or financial market conditions could negatively impact our financial results;
|
•
|
Our international operations may not achieve projected growth objectives, which could adversely impact our overall business and results of operations;
|
•
|
Disruptions, failures or security breaches of our information technology infrastructure could have a negative impact on our operations;
|
•
|
We might not be able to hire, engage and retain the talented global workforce we need to drive our growth strategies;
|
•
|
We may not fully realize the expected costs savings and/or operating efficiencies associated with our strategic initiatives or restructuring programs, which may have an adverse impact on our business; and
|
•
|
Such other matters as discussed in our
2016
Annual Report on Form 10-K.
|
Period
|
|
Total Number
of Shares Purchased (1) |
|
Average Price
Paid per Share |
|
Total Number of
Shares Purchased as Part of Publicly Announced Plans or Programs (2) |
|
Approximate
Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (2) |
||||||
|
|
|
|
|
|
|
|
(in thousands of dollars)
|
||||||
April 3 through April 30
|
|
—
|
|
|
$
|
—
|
|
|
—
|
|
|
$
|
100,000
|
|
May 1 through May 28
|
|
600,000
|
|
|
$
|
111.99
|
|
|
—
|
|
|
$
|
100,000
|
|
May 29 through July 2
|
|
286,675
|
|
|
$
|
114.42
|
|
|
—
|
|
|
$
|
100,000
|
|
Total
|
|
886,675
|
|
|
$
|
112.77
|
|
|
—
|
|
|
|
|
|
|
THE HERSHEY COMPANY
|
|
|
|
|
(Registrant)
|
|
|
|
|
|
|
Date:
|
July 28, 2017
|
|
/s/ Patricia A. Little
|
|
|
|
|
Patricia A. Little
|
|
|
|
|
Senior Vice President, Chief Financial Officer
|
|
|
|
|
(Principal Financial Officer)
|
|
|
|
|
|
|
Date:
|
July 28, 2017
|
|
/s/ Javier H. Idrovo
|
|
|
|
|
Javier H. Idrovo
|
|
|
|
|
Chief Accounting Officer
|
|
|
|
|
(Principal Accounting Officer)
|
|
1 Year Hershey Chart |
1 Month Hershey Chart |
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