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Hershey Announces Third Quarter Results; Updates Outlook For 2012

Note: In this release, Hershey references income measures that are not in accordance with U.S. generally accepted accounting principles (GAAP) because they exclude business realignment and impairment charges, business acquisition closing and integration costs, certain gains and losses, and non-service-related pension costs. These non-GAAP financial measures are used in evaluating results of operations for internal purposes. These non-GAAP measures are not intended to replace the presentation of financial results in accordance with GAAP. Rather, the Company believes exclusion of such items provides additional information to investors to facilitate the comparison of past and present operations. A reconciliation is provided below of earnings per share-diluted in accordance with GAAP as presented in the Consolidated Statements of Income to non-GAAP financial measures, which exclude business realignment and impairment charges as well as non-service-related pension expense for the third quarter and first nine months in 2012 and 2011, closing and integration costs primarily related to the Brookside acquisition in 2012 and a gain on the sale of trademark licensing rights recorded in the third quarter of 2011.

  Third Quarter Ended
September 30, 2012   October 2, 2011
  Percent of   Percent of
In thousands except per share amounts Dollars   Net Sales Dollars   Net Sales
 
Gross Profit/Gross Margin $ 742,757 42.5% $ 680,181 41.9%

Project Next Century charges included in cost of sales
5,158 9,464
NSRPE included in cost of sales 2,308
Acquisition costs included in cost of sales   3,715      
Adjusted non-GAAP Gross Profit/Gross Margin $ 753,938   43.2% $ 689,645   42.5%
 
EBIT/EBIT Margin $ 301,730 17.3% $ 321,116 19.8%
Charges included in cost of sales 11,181 9,464
Project Next Century charges included in SM&A 587 1,868
NSRPE included in SM&A 2,030 200
Acquisition costs included in SM&A 1,082
Gain on sale of trademark rights included in SM&A (17,034 )
Business Realignment & Impairment charges, net   20,055     2,187  
Adjusted non-GAAP EBIT/EBIT Margin $ 336,665   19.3% $ 317,801   19.6%
 
Net Income/Net Margin $ 176,716 10.1% $ 196,695 12.1%
Charges included in cost of sales 11,181 9,464
Charges/(credits) included in SM&A 3,699 (14,966 )
Business Realignment & Impairment charges, net 20,055 2,187
Tax impact of net charges/(credits) and gain   (12,200 )   579  
Adjusted non-GAAP Net Income/Net Margin $ 199,451   11.4% $ 193,959   11.9%
 
EPS - Diluted $ 0.77 $ 0.86
Charges included in cost of sales 0.03 0.03
Charges/(credits) included in SM&A 0.01 (0.05 )

Business Realignment & Impairment charges, net
  0.06      
Adjusted non-GAAP EPS - Diluted $ 0.87   $ 0.84  
 
  Nine Months Ended
September 30, 2012   October 2, 2011
  Percent of   Percent of
In thousands except per share amounts Dollars   Net Sales Dollars   Net Sales
 
Gross Profit/Gross Margin $ 2,104,674 43.0% $ 1,900,686 42.1%
Project Next Century charges included in cost of sales 38,041 23,346
NSRPE included in cost of sales 6,927
Acquisition costs included in cost of sales   4,137      
Adjusted non-GAAP Gross Profit/Gross Margin $ 2,153,779   44.0% $ 1,924,032   42.6%
 
EBIT/EBIT Margin $ 858,531 17.5% $ 826,019 18.3%
Charges included in cost of sales 49,105 23,346
Project Next Century charges included in SM&A 2,138 4,020
NSRPE included in SM&A 6,092 1,856
Acquisition costs included in SM&A 7,894
Gain on sale of trademark rights included in SM&A (17,034 )
Business Realignment & Impairment charges/(credits), net   28,204     (5,927 )
Adjusted non-GAAP EBIT/EBIT Margin $ 951,964   19.5% $ 832,280   18.4%
 
Net Income/Net Margin $ 511,052 10.4% $ 486,829 10.8%
Charges included in cost of sales 49,105 23,346
Charges/(credits) included in SM&A 16,124 (11,158 )
Business Realignment & Impairment charges/(credits), net 28,204 (5,927 )
Tax impact of net charges   (33,631 )   (2,709 )
Adjusted non-GAAP Net Income/Net Margin $ 570,854   11.7% $ 490,381   10.9%
 
EPS - Diluted $ 2.23 $ 2.12
Charges included in cost of sales 0.14 0.07
Charges/(credits) included in SM&A 0.05 (0.04 )
Business Realignment & Impairment charges/(credits), net   0.08     (0.02 )
Adjusted non-GAAP EPS - Diluted $ 2.50   $ 2.13  
 

In 2011, the Company recorded GAAP charges of $43.4 million, or $0.11 per share-diluted, attributable to Project Next Century and $5.8 million, or $0.02 per share-diluted, related to the Global Supply Chain Transformation (GSCT) program and $2.8 million, or $0.01 per share-diluted, of non-service-related pension expense (NSRPE). Additionally, in the third quarter of 2011, the Company recorded a pre-tax gain on the sale of certain trademark licensing rights of $17.0 million, or $0.05 per share-diluted. In 2012, acquisition closing and integration costs related to the Brookside acquisition are expected to be $0.04 to $0.05 per share-diluted. Additionally, the Company expects to record total GAAP charges of about $80 million to $85 million, or $0.23 to $0.24 per share-diluted, attributable to Project Next Century and $20.8 million, or $0.06 per share-diluted of NSRPE in 2012.

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